Analysis of Tariff orders of Distribution Utilities issued ... No 75...i SUMMER INTERNSHIP REPORT ON Analysis of Tariff orders of Distribution Utilities issued by respective SERCs

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SUMMER INTERNSHIP REPORT

ON

Analysis of Tariff orders of Distribution Utilities issued by

respective SERCs of Haryana, Gujarat and Maharashtra &

Impact of SOP on their tariff

Under the Guidance of

Ms. VARDAH SAGHIR SR. FELLOW, NPTI

Mr. RAVI DESHMUKH (MD) (PPS ENERGY SOLUTIONS LTD.)

By

Sangharsha Arun Kelzare Batch: 2012-14

Roll N0 75 MBA (POWER MANAGEMENT)

Sector-33,

Faridabad – 121003, Haryana (Under the Ministry of Power, Govt. of India)

Affiliated to

MAHARSHI DAYANAND UNIVERSITY, ROTHAK

AUGUST 2013

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DECLARATION

I, Sangharsha Arun Kelzare, Roll No. 75, of MBA (Power Management), National Power

Training Institute, Faridabad, completed my summer internship of eight weeks at PPS

Energy Solution, hereby declare that Summer Internship Report titled Analysis of Tariff

orders of Distribution Utilities issued by respective SERCs of Haryana, Gujarat and

Maharashtra & Impact of SOP on their tariff is an original work and the same has not been

submitted to any other institute for award of any other degree.

A Seminar presentation of the Training report was made on August ______________and the

suggestions as approved by the faculty were duly incorporated.

Presentation In-Charge Signature of the Candidate

Counter signed

Director/Principal of the Institute

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Acknowledgement

At the outset, I am grateful to PPS Energy Solution Limited for giving me the opportunity to

do my summer internship with them.

I take this opportunity to thank Sh .Ravi G. Deshmukh., besides guiding me PPS Energy

Solution limited he also encouraged and motivated me throughout my summer internship

program. He gave me his valuable time and supported me at each step with his expertise and

provided me all the information required for my project.

I’m also thankful to Ms. Vardah Saghir Sr. Fellow, NPTI for her valuable suggestions.

I also thank Mr. S.K Choudhary (Principle Director, CAMPS), Ms. Manju Mam ( Director,

NPTI) & Ms. Indu Maheswari, (Dy. Director, NPTI), , Dr. Rohit Verma, (Dy. Director,

NPTI), and Ms. Farida Khan for arranging my summer internship program with PPS

Energy Solution Limited and providing assistance and support whenever required.

I duly acknowledge with gratitude the help and cooperation received from the entire PPS

Energy Solution limited.

Sangharsha Arun Kelzare

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EXECUTIVE SUMMARY:

Under this study, a comprehensive survey of tariff orders issued by different SERCs was

undertaken and the findings were compiled in a uniform format for all the states. In

particular, the study had attempted to bring out the following:

Comparison of approaches followed by SERCs towards different elements of annual

revenue requirement (ARR).

Compliance attained by the regulated utility with the costs approved and the directives

issued by SERCs.

Examination of regulatory effectiveness w.r.t. such parameters as T&D loss reduction,

extent of tariff rationalization, employee productivity, etc.

Identification of initiatives taken by SERCs that could be replicated in other states

This project is carried out to understand the different approaches adopted by the State

Electricity Regulatory Commissions (SERCs) while analyzing & approving the financial &

operational parameters, treatment of variation in expenses, Multi Year Tariff (MYT) or

annual tariff determination approach & tariff design principles employed for fixing the Retail

tariff for DISCOMs under their jurisdiction.

The enactment of Electricity Act 2003 has provided the legal framework to bring the reforms

in electricity sector. The Act has also empowered & given the responsibilities to the SERCs

to deal with the operational matters related to Distribution of electricity. The Section 61

(Tariff Regulations) & Section 62 (Determination of Tariff) of Electricity Act 2003, notifies

the function of SERCs to determine the tariff for Generation, Transmission, supply &

wheeling charges for electricity, wholesale, bulk or retail tariff as in the case may be, within

their area of jurisdiction. SERCs have issued Tariff Orders for the DISCOMs after analyzing

& approving the Aggregate Revenue Requirement (ARR) of the DISCOMs. This Project is

an attempt to study the approaches adopted by SERCs & their effect on DISCOMs

performance.

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This Project has analyzed the Distribution ARR & Tariff Orders issued by the 3 SERCs of

States namely Haryana, Gujarat, & Maharashtra during the last five years i.e. from FY 2007-

08 to FY 2011-12.

The objective of the study is analysis of Tariff Orders & Other related Orders of State

Electricity Regulatory Commissions (SERCs) with focus on:

Tariff Rationalization;

MYT – Base Line Data;

Wheeling Charges & Transmission Charges : Separation and

Rationalization;

Subsidy Payment and its Treatment in Tariff;

Power Purchase Cost.

The second part of the project deals with The Standard of Performance of different utilities.

To study the Standard Of Performance of different utilities is that to know whether

the utilities are performing with that standard which are specified by the SERC’Cs

To understand Reliability Indices according to International Standards.

To Study the management tool for implementing reliability indices in different states

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Contents 1. ORGANIZATION PROFILE ........................................................................................................ 1

1.1 About the organization ........................................................................................................ 1

1.2 ORGANIZATION SERVICES .................................................................................................... 3

Energy Management .................................................................................................................. 3

Consultancy ............................................................................................................................... 4

Infrastructure Development & Maintenance ............................................................................... 4

Project Management .................................................................................................................. 4

Critical Assessment of PPS Energy Solution Ltd ........................................................................ 4

1.3 SWOT ANALYSIS ................................................................................................................. 5

Strengths ................................................................................................................................... 5

Opportunities ............................................................................................................................. 5

Threats ...................................................................................................................................... 5

2. OBJECTIVE OF PROJECT: ......................................................................................................... 6

3. SIGNIFICANCE OF THE STUDY: ................................................................................................ 7

4. SCOPE OF THE PROJECT: ........................................................................................................ 9

5. INTRODUCTION.................................................................................................................... 11

5.1 REGULATORY PROCESS: ..................................................................................................... 11

5.2 TARIFF APPROACH ADOPTED BY COMMISSIONS: ............................................................... 14

5.3 STATUS OF REFORMS: ........................................................................................................ 16

6. SERCS APPROACH TOWARDS FINANCIAL & OPERATIONAL PARAMETERS: ............................ 17

6.1 ENERGY SALES:................................................................................................................... 18

6.2 POWER PURCHASE: ............................................................................................................ 21

Merit Order Dispatch ............................................................................................................... 28

6.3 DISTRIBUTION LOSSES: ....................................................................................................... 30

6.4 CAPITAL EXPENDITURE: ...................................................................................................... 33

6.5 CAPITAL STRUCTURE: ......................................................................................................... 34

6.6 DEPRECIATION: .................................................................................................................. 34

6.7 RATE OF RETURN (ROE OR ROCE): ...................................................................................... 38

6.8 INTEREST AND FINANCE CHARGES: .................................................................................... 42

6.9 INTEREST ON WORKING CAPITAL: ...................................................................................... 45

6.10 OPERATION & MAINTENANCE EXPENSES: ........................................................................ 48

7. IMPACT OF STANDARD OF PERFORMANCE ON TARIFF ......................................................... 61

7.1 Standards of Performance .................................................................................................. 61

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7.2 Title, Extent and Commencement: ................................................................................... 62

8. PARAMETERS OF STANDARD OF PERFORMANCE:................................................................. 64

8.1. RELIABILITY OF THE SYSTEM .............................................................................................. 64

8.2. Exemption......................................................................................................................... 65

8.3 INFORMATION REGARDING LEVEL OF PERFORMANCE: ...................................................... 66

8.4. Handling of complaint: ...................................................................................................... 69

8.5 COMPENSATION: ............................................................................................................... 72

9. EFFECTS OF STANDARD OF PERFORMANCE ON TARIFF: ....................................................... 75

10. CONCLUSION: .................................................................................................................... 77

11. RECOMMENDATIONS: ........................................................................................................ 81

12. REFERENCES:...................................................................................................................... 85

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1. ORGANIZATION PROFILE

1.1 About the organization PPS is an ambitious company, established by enterprising engineering professionals in

the year 2004. The company offers services pertaining to Energy, Engineering and

Architecture to clients across the globe. PPS team is based in Pune, a city known for

its Software and Engineering talent in India. PPS is a rapidly growing company with a

team of about 100 people which includes highly trained and experienced Techno-

Managers, Analysts, and Engineers & Detailers. In the PPS philosophy, the client

always comes first.

Understanding every clients‟ needs and requirements & to offer customized solutions

is an endeavour undertaken by each one of their employees. PPS prides itself as a

technology driven company. Company believes that use of cutting edge technology

can greatly enhance output & quality, reduce project life cycle & optimize costs in

long run.

Figure 1- Organization setup

PPS values the natural resources and is committed to preserve them. Company

promotes all environment friendly techniques to the maximum extent. As a natural

Energy Consulting

• Cost reduction /Process • Reengineering/Organisation Design

Policy & Regulations

• Regulatory Economics/ PPP Model/Governance

Development Consulting

• Project Advisory/Bid Advisory/Financial Restructuring/Capacity Building/Energy

Efficient Building Advisory

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corollary of their commitment to the environment & energy efficient structures, the

company entered the energy sector as a service provider to the various arms of the

power industry under the name of PPS Energy Solutions Pvt. Ltd.

PPS Energy Solutions is primarily formed to serve their clients to meet numerous

challenges created by a rapidly growing energy market. They are focused on pro-

viding affordable energy solutions for our clients in energy & power sector.

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1.2 ORGANIZATION SERVICES

Figure 2- Organization Services

Energy Management Energy Audits PPS Team offer Energy Audits for:

Process Industries Steel, cement, chemical, etc.

Power Distribution Sub stations, switching stations, distribution feeders, etc.

Commercial Buildings Malls, operating plants, offices, hospitals, colleges,

etc.

Generation Units Mini / micro generation utilities

PPS Energy

Energy management

Project Management

Consultancy

Infrastructure Development

& Maintenance

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Energy Planning & Optimization

PPS do Energy Efficiency studies and provide solutions regarding green

building & lighting simulations.

Consultancy

Power Distribution End to end support in distribution loss reduction, asset

management, formulation of various schemes, DPR & claims for various power

utilities Renewable Energy Complete support to clients for establishing renewable

power generation units Rural Electrification Formulation of DPR & schemes for rural

electrification. Also supporting clients for developing rural electrification

infrastructure. Power Regulation Offer regulatory support to power utility companies,

transmission companies, generation units, utility consumers, industries & power

market etc for filing petitions & sorting out the problems thereof. Power Generation

Formulation of feasibility report, project report, tariff proposals, power purchase

agreements, fund arrangements for Mini and Micro projects.

Infrastructure Development & Maintenance

We offer Engineering, Procurement, Commissioning & Maintenance services in

Power Sector Power Distribution Provide end to end solutions in erection of

distribution substations and allied works. Power Transmission Provide end to end

solutions in erection of EHV lines & allied works. Power Generation Provide end to

end solutions in Micro and Mini power generation units.

Project Management Schedule and budget evaluations Value engineering Constructability reviews

Accuracy checks on cost estimates Monitoring and coordinating daily construction

activities Technical Audits Contract Negotiation and Administration Project Controls

and Scheduling Regulatory Agency Coordination and Negotiation Risk Management.

Critical Assessment of PPS Energy Solution Ltd Through the process of carrying out several assignments over the past many years,

PPS Energy Solution has accumulated considerable analytical and consulting

expertise, backed by the following organisational capabilities:

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An extensive and organised database on power sectors.

Knowledge of key factors of success in different projects and program.

An ability to research emerging global trends, both in specific countries as well

as in energy sectors, based on primary and secondary data.

Performance benchmarking & Quantitative and financial modeling

Ability to identify the various types of risks in energy area and suggest

appropriate strategies to mitigate the same.

Ability to work in different geographies on its own and through affiliate

partners

1.3 SWOT ANALYSIS

Strengths Core team of expert professionals & excellent work culture.

Targeting untapped markets with best management skills and corporate

strategy

Time bound targeted goals & promotion of all environment friendly

techniques to the maximum extent.

PPS is certified energy auditing firm for carrying all types of energy audit.

Weakness

Company is in the initial stage of growth.

Small team to handle multiple projects.

Opportunities

Vast and growing market for energy conservation and energy audits.

Company can grab lots of government projects.

Create awareness among industries regarding energy efficiency.

Threats

Number of players has started entering this section of power sector.

Growing competition.

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2. OBJECTIVE OF PROJECT:

This Project has analyzed the Distribution ARR & Tariff Orders issued by 3 State Electricity

Regulatory Commission (SERCs) of the states Haryana, Gujarat & Maharashtra during the

last five years i.e. from FY 2007-08 to FY 2011-12. In the early 2000s, the Govt. of India

introduced a number of reform measures for the power sector. These included the passing of

the Electricity Act 2003, National Electricity Policy & the National Tariff Policy. These

initiatives aimed to create a competitive market place & ensure availability of power at

affordable price. They also aimed to ensure commercial viability of the state utilities &

promote transparency, predictability & consistency as well as competition among the

supplier. This project has carried out with the aim whether these policies have resulted in

achievement of above said objectives as well as tariff rationalization & a reduction in cross

subsidy levels.

Under this study, a comprehensive survey of tariff orders issued by SERCs was undertaken

and the findings were compiled in a uniform format for all the states. In particular, the study

had attempted to bring out the following:

Comparison of approaches followed by SERCs towards different elements of annual

revenue requirement (ARR).

Compliance attained by the regulated utility with the costs approved and the directives

issued by SERCs.

Examination of regulatory effectiveness with respect to such parameters as T&D loss

reduction, extent of tariff rationalization, employee productivity, etc.

Identification of initiatives taken by SERCs that could be replicated in other states

.

This Project aims to analyze different approaches held by respective SERCs to deal with the

performance of different utilities. It deals with the study of what kinds of process are applied

to check whether the utilities are working properly or not.

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3. SIGNIFICANCE OF THE STUDY:

Under the Electricity (Regulatory) Act, 1998, State Electricity Regulatory commissions were

formed. The SERCs, in exercise of the power vested in it under Section 86 of Electricity Act

2003 and all other power enabling it in on this behalf performs following functions:

To determine the tariff for electricity, wholesale, bulk, grid or retail and for the use of

the transmission facilities

To regulate power purchase, transmission, distribution, sale and supply

To promote competition, efficiency and economy in the activities of the electricity

industry.

To aid and advise the Government on power policy to collect and publish data and

forecasts

To regulate the assets and properties so as to safeguard the public interest

To issue licenses for transmission, bulk supply, distribution or supply of electricity

To regulate the working of the licensees

To adjudicate upon the disputes and differences between licensees.

Section 42 of Electricity Act 2003 notifies open access in Distribution sector. SERCs have

further issued regulations regarding open access, cross subsidy surcharge & wheeling

charges. SERCs have the vital responsibility of rationalization of tariff, as stated in Electricity

Act 2003.

Section 61(Tariff regulations) of Electricity Act 2003 states:

―The Appropriate Commission shall, subject to the provisions of this Act, specify the terms

and conditions for the determination of tariff, and in doing so, shall be guided by the

following, namely:- 17

(d) Safeguarding of consumers' interest and at the same time, recovery of the cost of

electricity in a reasonable manner;‖

The Ministry of Power also issued the National Tariff Policy in January 2006 that states the

following:

“Balancing the requirement of attracting adequate investments to the sector and that of

ensuring reasonability of user charges for the consumers is the critical challenge for the

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regulatory process. Accelerated development of the power sector and its ability to attract

necessary investments calls for consistent regulatory approach across the country.

Consistency in approach becomes all the more necessary considering the large number of

States and the diversities involved.”

This project is important in a way to study the role of Regulatory Commission in the post

reform period & aftermaths of the enactment of Electricity Act 2003. The enactment of

Electricity Act 2003 has brought radical changes in electricity sector by empowering the

Electricity Regulatory Commissions (CERC & SERC) to deal with most of the operational

functions related to generation, Transmission & distribution of electricity previously carried

out by Govt. The State Electricity Regulatory Commission (SERC) determines the tariff for

Distribution Licensees.

The guidelines framed by the SERCs for Revenue and Tariff filings of licenses which seeks

it‘s calculations related to ARR of each licenses for the ensuing financial year regarding (i)

its expected aggregate revenue from proposed sale under its existing approved tariff; (ii) its

expected cost of service and (iii) its expected revenue gap (if any) and a general explanation

on how it proposes to deal with the revenue gap. The Commission then analyses the data filed

in ARR with previous year‘s trend under the reference of Tariff regulations issued by SERC

with reference to NEP and NTP guidelines as notified under section 3 of Electricity Act 2003.

The energy business is a concurrent business. Being a quasi-judicial autonomous body the

approaches held by SERCs regarding approval of ARR differs. This Project aims to analyze

different approaches held by respective SERCs to approve the required financial &

operational parameters like setting performance parameters, treatment of variation in

expenses, MYT or annual tariff determination approach & Tariff Design Principles etc.

This Project aims to analyze different approaches held by respective SERCs to deal with the

performance of different utilities. It deals with the study of what kinds of process are applied

to check whether the utilities are working properly or not.

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4. SCOPE OF THE PROJECT:

In this Project, Tariff orders of 3 SERCs of states namely Haryana, Gujarat & Maharashtra

has been analyzed.

The following aspects have been covered while carrying out the analysis of distribution ARR

& Tariff Orders:

Regulatory approach for operational parameters

Regulatory approach for financial parameters

Tariff Design principles & fixation of tariff

MYT & TOD tariff approach

The following aspects have also been dealt with:

1. Status of regulatory reforms;

2. Regulatory approach for revenue requirement including parameters such as:

Sales mix/demand estimation (consumer category-wise);

Process of procurement of power/fuel;

Assessment of technical and commercial loss (for transmission and distribution

system);

Investment/Capex approval criteria – basis and linkage with loss reduction, system up

gradation and reliability;

Debt –Equity ratio;

Depreciation;

Rate of return - Compilation and analysis of the approach (ROE or ROCE) followed

by different SERCs in fixation of tariff;

Interest on loan;

Interest on working capital requirement;

Operation and maintenance;

Renovation and modernization (R&M) (not periodic overhauls);

Power purchase cost including quality and operational criteria for recovery of fixed

cost, variable cost and incentive.

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2. Tariff Rationalization:

Trend of consumer category-wise tariffs;

Revenue gap – year-wise gap between approved Aggregate Revenue Requirement

(ARR) and actual revenue realization;

3. Subsidy Payment and its treatment in tariff:

Approach and format of communicating the requirement of subsidy by SERCs;

Status of payment of subsidy by State Governments;

Whether SERCs are notifying the tariff without subsidy, which is to be payable by a

consumer in the event subsidy is not paid by the State Government;

Status of consumer category wise/overall subsidy;

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5. INTRODUCTION

5.1 REGULATORY PROCESS:

The electricity regulator in general has adopted a quasi-judicial approach. Section 27 of the

ERC (Electricity Regulatory Commission) Act, 1998, mandated that the regulator must hear a

person authorized to represent the consumers. Application filed to the commission is now

made available to all parties and the stakeholders are now given an opportunity to comment

on the filled application.

Each year, at the time required by its licence, each licensee shall file with the Commission a

report for each of its Separate Businesses on its expected aggregate revenues from charges

under its currently approved tariff and its expected cost of service. 21

The ARR report shall contain the following information:

The licensee‘s demand forecast by consumer class for the succeeding twelve month

period ensuing financial year and the derivation of the forecast;

A calculation of expected aggregate revenue that would result from the above demand

during the same period under the currently approved tariff by consumer class;

A calculation of the licensee‘s estimated costs of providing the service required by the

level of demand for each consumer class during the same period calculated in

accordance with the financial principles and their applications in the Sixth Schedule to

the Electricity (Supply) Act, 1948 or such other principles the Commission may

prescribe from time to time;

The licensee‘s general explanation of how it proposes to deal with any significant

divergence between the revenue and cost figures provided in subsections (2) and (3)

above; and

Such other information as the Commission may direct from time to time.

The licensee shall furnish to the Commission when required such information, particulars,

and documents as the Commission may require from time to time for the purpose of

validating the report submitted

Once the licensee has provided all the requisite information, particulars, and comments

required by the Commission, the Commission shall notify the licensee of its decision within

the time set forth in the Act.

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If the Commission determines that a licensee‘s expected revenues differ significantly from

the revenue it is permitted to recover under its licence, it may order the licensee to file an

application again within the specified time to amend its tariffs appropriately.

Tariff applications shall include the following:

(a) Where the proposed date of implementation falls within a financial year for which the

Commission has previously determined a permitted aggregate revenue requirement, the filing

22 of proposed tariff should be accompanied by a copy of the relevant Annual Revenue

Report as submitted by the licensee, plus a copy of the order passed by the Commission in

relation to that report.

Where no determination of a permitted aggregate revenue requirement has been made for the

financial year in which the proposed tariff is to be implemented, the filing of proposed tariff

should be accompanied by the Annual Revenue Report for that financial year.

(b) The information to be provided by the licensee must include:

1. A statement of the current tariff rates and all applicable terms and conditions, and the

expected full-year revenue from the current tariff rates in the year in which the new tariff is to

be implemented.

2. A statement of the proposed tariff rates prices and changes, including a full statement of all

applicable terms and conditions. This statement should be shown in a form appropriate to the

proposed tariff structure. Details should also be supplied of the publicity intended to be given

to new tariff options when they are to be implemented.

3. A statement of the expected full-year revenue of the proposed tariff for the year in which

the tariff is to be implemented.

4. If the proposed tariff is to be introduced after the start of the financial year, a statement of

the proportion of expected revenue and quantities supplied under each proposed rate during

the remaining months of the financial year shall be included.

5. A statement of the estimated change in annual expected revenues that would result from

the proposed tariff changes in the year in which they are to be implemented, stated in Rupees

and percentage terms.

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6. An embedded cost study detailing functioning, classification, and allocation of the revenue

requirement into consumer classes, and determination of embedded cost-based tariffs, free of

external subsidies and cross-subsidies. The study shall include all relevant details and

methods used in determination of tariffs for each consumer class. If the licensee proposes

cost-based tariffs for all consumer classes, the proposed tariff must be the result of the

embedded cost study.

7. A study of marginal costs of the licensee‘s business, including time-differentiated, short-

term marginal costs by voltage levels and a written explanation of the methods used to

calculate marginal costs. In addition, the statement shall include a comparison of the

percentage of marginal costs recovered by the current and proposed tariff for each tariff class.

8. A written explanation of the rationale for the proposed tariff changes, including

justification of the return on equity being requested.

9. A statement that calculates the amount of cross subsidy in the existing tariffs and in the

proposed tariffs, and compare the two. If the proposed tariffs include a cross subsidy, a

statement is required, as applicable, to show how this complies with any planned transition

period by the Commission.

10. A statement containing full details of the calculation of any subsidy received, due or

assumed to be due from the State Government, the consumers to whom it is directed, and

documentation showing how the subsidy is reflected in the current and proposed tariff

applicable to those consumers. This statement shall also include the tariff calculated without

consideration of the subsidy for those consumers. The subsidy calculations shall also

compare the situation in the year in which the tariff is to be implemented with similar data for

the previous year and, where relevant, the current year.

11. A written explanation, supported by calculations of tariff rates, of any proposed new

tariff.

12. The licensee may, if he so wishes, submit any more recent updates of information

specified in Sections 6, 7 and 8 of the Annual Revenue Report Guidelines available at the

time of the tariff filing.

13. Any other information, as required by the relevant license or specified by the

Commission.

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If the licensee believes that the amendments being proposed are minor in nature and will not

change significantly either the expected aggregate revenues or the bills of any class of

consumer or customer, the licensee may request waiver of any of the requirements mentioned

above subject to the approval of the Commission. 24 Within 7 days after the Commission has

notified the licensee that it has received all necessary information, the licensee shall arrange

for publication of a notice of its tariff application and send copies to the Commission

Advisory Committee and relevant local authorities in accordance with the Conduct of

Business Regulations. The notice shall include a general description of the tariff amendment

being applied for and its effect on the typical residential consumer‘s bill, and an invitation to

submit written comments and objections to the tariff application to the Commission within 30

days. The licensee shall also post the notification in each of its offices. After receiving all the

comments and objections commission should organize the public hearing process. The time

and venue of the hearing will be advertised by the licensees. In the public hearing licensee

will respond to all the objections raised by the stakeholders. And commission will take the

note of all the objections and responses given by licensees depending on whether it‘s satisfied

or not. After the public hearing process, commission should hold a meeting with state

advisory committee. After considering all the conclusions in this meeting commission should

come out with the final tariff order.

5.2 TARIFF APPROACH ADOPTED BY COMMISSIONS:

The ROR regulation is the traditional approach to regulation. Under this, rates are set so as to

enable a utility reasonable opportunity to recover prudently incurred expenses (including

investment) and a fair return on the remaining cost (the un-depreciated portion) of

investment. So far, states in India follow this approach of regulation in the electricity sector.

Rate-of-return regulation provides the regulated companies with sufficient incentives for

capacity expansion and even creates incentives for overcapitalization1. However, this

approach does not provide incentives for cost savings and efficiency improvements but

rewards over investments unless there is some form of efficiency benchmarking connected to

it. 25

With the move towards MYT regimes, SERCs are trying to move towards Performance

Based Regulation (PBR). PBR mechanism provides more powerful incentives for regulated

firms to reduce costs, improve service quality in a cost effective way, stimulate the

15

introduction of new products and services, and stimulate efficient investment in and pricing

of access to regulated infrastructure services.

Performance based system gives direction to regulated firms. The firms can choose the way

in which they want to meet these targets. The regulator sets the targets for the key

performance parameters of the utility and calculates the tariffs assuming that the targets are

met. If the utility exceeds the targets, it would make profits and if it falls short there is profit

reduction or even loss. PBR makes use of the information advantage. The regulator thus

controls less behaviour and rewards outcomes. However, even in this move towards PBR, it

is observed that adequate flexibility is not being given to the utilities and it does not do away

with the present system of annual review.

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5.3 STATUS OF REFORMS:

Below in the table Status of reform in the state of Haryana, gujrat and Maharashtra has been

shown:

Source: Tariff Orders of HERC, GERC and MPERC.

STATE UTILITY SECTOR DATE OF

UNBUNDLING

Haryana HPGCL Generation 14-08-1998

HVPNL Transmission 14-08-1998

DHBVNL Distribution 01/07/1999

UHBVNL Distribution 01/07/1999

Gujarat GSECL Generation 01-04-2005

GETCO Transmission 01-04-2005

UGVCL Distribution 01-04-2005

DGVCL Distribution 01-04-2005

MGVCL Distribution 01-04-2005

PGVCL Distribution 01-04-2005

TPL Distribution &

Generation

Maharashtra MSPGCL Generation 06-06-2006

MSETCL Transmission 06-06-2006

MSEDCL Distribution 06-06-2006

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6. SERCS APPROACH TOWARDS FINANCIAL & OPERATIONAL PARAMETERS:

The ARR parameters are segregated into financial & operational parameters. The ARR

parameters are reviewed by SERCs for regulatory account only i.e. related to regulatory

parameters from the profit/loss account of the previous years.

The operational parameters are as follows:

1. Energy Sales (Consumer category-wise)

2. Power Purchase

3. Assessment of technical & commercial loss

The financial parameters are as follows:

4. Capital Investment / CAPEX

5. Capital Structure ( Debt/Equity ratio)

6. Depreciation

7. Rate of return (ROE or ROCE)

8. Interest on loan

9. Norms on working capital

10. Cost of foreign exchange risk

11. Operation & Maintenance

The Aggregate Revenue Requirement (ARR) is segregated into ARR for Wheeling or

Distribution business & ARR for Retail business. The ARR for wheeling business forms

basis to determine Wheeling charges whereas the ARR for Retail business forms basis for

user end customer tariff.

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6.1 ENERGY SALES:

Projection of consumer category wise energy sales is essential for estimation of likely

revenue and to determine the quantum of power purchase. Proper estimation of category-wise

energy sales is most essential to arrive at the quantum of power purchase and the likely

revenue by sale of energy. Category wise sale estimation gives an idea about the trends in

consumption pattern, like which category, whether subsidizing or subsidized is showing

either increase or decrease in consumption which is crucial in forecasting category wise

revenue. The present method used by the SERCs is based on actual past sale data (historical

trend method) & future forecasting. The SERCs arrive at energy input or units to be

purchased by grossing up the expected sale with Transmission & Distribution (T&D) losses.

The sale for each DISCOM (actual & approved) for the period under consideration is given in

table below.

19

Electricity sale

(MU)

Name of the

States

Distribution

Licenses

2007-08 2008-09 2009-10

Actual Approved Actual Approved Actual Approved

Gujrat PGVCL 11720 10740 12250 12250 13201 13,084

DGVCL 7974 8181 8307 8307 9,008 8,978

UGVCL 10425 9541 10927 10927 11,474 11,447

MGVCL 4906 4622 5389 5389 5,889 5,860

TPL (AD) 4492 4492 4737.35 4737.35 4770 4995.82

TPL (SD) 2983 2983 2907.18 2907.18 2770.71 2885.18

Haryana DHBVNL 8981.78 9275 9859.56 10835 10854.83 10633

UHBVNL 9281 8717 9461.36 10203 10854.83 9762

Maharashtra MSEDCL 55715 55715 57796 57796 64356 62696

Tpc‐d 2506 2506 2468 2468 2638 2638

Rel‐d 7912 7912 8126 8230

Best 4024 4024 4103 4103 4257 4257

20

Gujarat discoms have projected the future sales on the basis of historical trend. Discoms have

therefore estimated the consumers, connected load and energy sales based on compounded

annual growth (CAGR) trends during the past years. They calculated the compounded annual

growth rate (CAGR) of last three years and on the basis of this rate they gave their future

prediction.

GERC considered last three year CAGR and recent trend (Year on Year growth of last 2

years) while approving the final sales figures for each category.

Haryana discoms have projected consumer category wise energy sales (except agriculture) on

the basis of trend determined by compounded annual growth (CAGR) for various years

which is based on the audited figures for previous years. As Haryana is a energy deficit state,

the actual sales data is therefore restricted to the extent of availability during the respective

years as there exists a large volume of unmet demand. The total saleable units have been

apportioned among different consumer categories in the same ratio as the projected sales.

HERC has followed the Annual Average Growth Rate (ALF) based methodology. The

consumption estimates for each category has been arrived at by applying the average ALF on

the annual average connected load of each consumer category projected on the basis CAGR

of the actual connected load data of past years.

The Maharashtra discoms has submitted that category wise CAGR of past 3 year‘s sales were

taken into account. CAGR for one year, two years have also been worked out. Other factors

like increase in sales due to projected increase in number of domestic consumers under

RGGVY scheme, regularisation of illegal connections etc. have also been taken into account

for additional sales in domestic category. Based on historical trends and the additional sales

expected due to the increase in number of consumers, growth rate higher than CAGR have

been considered in domestic category for the year 2009-10, while for other categories the

sales have been projected based on past 2 years CAGR, while in categories where the growth

had been negative as per CAGR, nominal growth rates have been considered.

MERC also follows the historical trend method by approving the sales figures of licensees

which were based on the CAGR of 2 or 3 years.

21

6.2 POWER PURCHASE: Once the energy requirement is arrived at, the power purchase cost is worked out by applying

merit order dispatch principles for the allocated capacities / PPAs. Cost of power is the most

important item of expenditure for the licensees. Every Commission examines the projected

availability of power from different sources in details & the requirement of sales. In the ARR

power purchase are reckoned only from those sources which have long term contracts with

the DISCOMs.

The rates of power purchased from individual generators are on the basis of their respective

agreements. As regards energy costs for DISCOMs, the methodology adopted is to take the

total energy cost, commonly known as Bulk Supply Tariff (BST), comprising

Energy costs;

Transmission costs;

SLDC charges.

The cost of purchase of power is largely a known parameter. The amount payable by the

distribution licensees is based on power purchase agreements with various generators that

clearly establish the price determination procedure. In case of central power sector units

(CPSU‘s) or other generators supplying power to more than one state, the Central Electricity

Regulatory Commission (CERC) determines tariff. Most of the elements constituting the total

charges i.e. capacity charges, base energy related charges, adjustment to base energy charges

for cost of fuel and other factors, taxes, duties, incentive payments etc. Are known or can be

estimated with a reasonable degree of accuracy.

While approving the cost of power procurement, the Commission determines the quantum of

electricity to be procured, consistent with power procurement plan, from various sources of

supply in accordance with the principle of merit order scheduling and dispatch, based on a

ranking of all approved sources of supply in the order of their respective variable costs, with

certain exceptions, as in the case of Non-Conventional Energy (NCE) projects, Nuclear

projects & some hydro projects accorded by various general and specific orders of the

Commission the status of ‗must-run‘ projects. In order to arrive at the quantum and cost of

power procurement, the Commissions had adopted the Sales Forecast, the Transmission &

Distribution loss trajectory. The power purchase cost is a uncontrollable expenditure item &

is trued up through Fuel Surcharge Adjustment (FSA) mechanism.

22

The relevant clause of National Tariff Policy (Clause 5.3 (h) (4) and Clause 8.2.1 (1)) says:

“Uncontrollable costs should be recovered speedily to ensure that future consumers are not

burdened with past costs. Uncontrollable costs would include (but not limited to) fuel costs,

costs on account of inflation, taxes and cess, variations in power purchase unit costs

including on account of hydro-thermal mix in case of adverse natural events.”

and

“All power purchase costs need to be considered legitimate unless it is established that the

merit order principle has been violated or power has been purchased at unreasonable rates.”

Variations in power purchase costs for the purpose of true-up will rarely occur as the Fuel

Surcharge Adjustment (FSA) formula issued by the Commission attempts to capture both the

price variance and the fuel variance during the course of the year itself. Any further variations

would arise mainly on account of purchases exceeding the limits approved in the Tariff

Order. All extra purchases of power do not automatically qualify for true-up. If the purchases

are for categories where the Commission has fixed a ceiling or quota, extra purchases will not

qualify for true-up.

The SERCs has studied energy availability from State Generating Stations (STS), Central

Generating Stations (CGS), and Independent Power Producers & Non Conventional Energy

(NCE) Sources. The Power purchased units & cost for all DISCOMs is given as in table

below.

23

Power Purchase (MUs)

Name of the States Distribution

Licenses

2007-08 2008-09 2009-10


Gujrat PGVCL 15289 16362 19229 19229 19741 19,251

DGVCL 10,181 10297 10330 10330 11,063 10843

UGVCL 13,296 12136 13524 13524 14,131 14063

MGVCL 5,967 5967 6678 6678 7,343 7288

TPL (AD) 4566.05* 4584* 5188.57 5188.57 5,406.71 5487.51

TPL (SD) 3076.96 3076.96 2,974.73 3095.72

Haryana DHBVNL 12972 14642 14555

UHBVNL 12192 13788 13362

Maharashtra MSEDCL 78734 78734 79200 77567 87222.83 84641.03

Tpc‐d 2686.83 2688 2651.47 2651.47 2856 2791

Rel‐d 9342.63 9207.57 9919.29 9513.57

Best 4608.38 4547.23 5124 4797.5 4999 4971

* the combined data of TPL(G), TPL(Surat) &TPL(Ahmadabad)

24

Power Purchase Cost (Lacs) Name of the States Distribution

Licenses

2007-08 2008-09 2009-10


Gujrat PGVCL 307910 332035 481747 481553 523245 449488

DGVCL 337633 318336 395356 395252 450100 356772

UGVCL 288495 279831 372033 371897 408399 360105

MGVCL 175913 176123 225356 225289 2,45,244 1,90,135

TPL (AD) 142459* 142459* 167702 167702 148617 169075

TPL (SD) 114097 114097 93535 111019

Haryana DHBVNL 307154.2 337683.9 376778.1 391798.1 403679.7 381356.7

UHBVNL 306449.7 321536.2 376779 371421.6 412412.7 361190


Tpc‐d 1,24,945 123949 126884 1270 1260 907

Rel‐d 3,21,954 308379 4,95,622 3,83,823

Best 186636 190099 232367 183704 2480 1681


25

The total cost of power purchase estimated by the Gujarat discoms does comprise of the

following components

Cost of the energy or power purchase cost based on PPA allocation and Merit order

despatch

Transmission charges of GETCO and PGCIL

SLDC fees and Charges

Allocated gap / surplus of GUVNL

E-Urja Cost (part of GUVNL Cost)

Once the energy requirement is arrived at, the power purchase cost is worked out by applying

merit order dispatch principles for the allocated capacities / PPAs.

It is submitted by DGVCL that when the erstwhile GEB was unbundled into seven entities, it

was decided by the State Government that Gujarat Urja Vikas Nigam Limited (GUVNL)

shall purchase the entire power requirement from GSECL, Central Generating Companies

and IPPs and shall perform the activity of bulk supplier of power to all the four Distribution

Companies at Bulk supply Tariff.

The State Government envisages uniform retail supply tariff in the four DISCOMs (of the

unbundled GEB). All the four Distribution Companies are incorporated on the basis of zonal

configuration. The consumer profile and consumption profiles are different in the four

Distribution Companies. In view of this, the revenue earning capabilities of each of the

DISCOMs is different. It is, therefore, necessary to build a mechanism in the projections to

bring them to a level playing field. This is proposed to be achieved by differential Bulk

Supply tariff (BST) to each of the DISCOMs. In this way, it would be possible to ensure

uniform retail consumer tariffs in the four DISCOMs.

The BST for DISCOMs includes the cost of power purchase from various generating stations,

the transmission costs of PGCIL, GETCO and the cost of bulk supplier GUVNL. The

revenue from sale of power to the bulk supply licensees i.e. Torrent Power Ahmadabad

Electric Company Limited (TPAL), Torrent Power Surat Electricity Company (TPSL) and

Kandla Port Trust (KPT) is subtracted from the total power purchase cost to arrive at net

power purchase cost to be charged to the four DISCOMs. The amount available for power

purchase with the four DISCOMs is arrived at by subtracting the sum of total expenses of all

the four DISCOMs from the total revenue of the four DISCOMs.

26

The difference between the net power purchase cost and the amount available with the four

DISCOMs indicates the revenue gap. This revenue gap varies from DISCOM to DISCOM.

The bulk supply tariffs for the four DISCOMs are fixed keeping in view the magnitude of the

revenue gap.

GUVNL has discontinued supply of power to Torrent Power Limited (TPL) from August,

2009 pursuant to commissioning of Sugen CCPP. In view of this, capacity retained by

GUVNL for supply of power to TPL‘s Ahmadabad and Surat distribution areas has been

allocated to the four distribution companies of Gujarat viz. DGVCL, MGVCL, PGVCL and

UGVCL with effect from August, 2009.

Prior to unbundling, all the utilities in the State were receiving supply from the pool of

energy in the State grid. The cost of the pooled energy is a weighted average of the

generation costs of individual stations feeding the grid. After unbundling, the distribution

areas of erstwhile GEB which covered the whole state (excluding the distribution areas of the

three private distribution licensees) were divided into four Discoms. These newly created

Discoms do not have a uniform consumer load mix. The agricultural loads (which are

uneconomical and involve high cross-subsidy) are proportionately much higher in PGVCL

and UGVCL. Thus these two Discoms face the problem of inadequate revenue for meeting

their expenditure. To get over this problem, GUVNL has allocated low cost PPAs (stations)

mainly to PGVCL and UGVCL. The high cost PPAs (stations) have been, by and large,

allocated to DGVCL and MGVCL. GUVNL has also retained some of the high cost PPAs

and is showing them as the source of supply to the three distribution licensees.

To an extent, the financial position of the Discoms with unfavourable load mix has to be

buttressed through allocation of low cost PPAs and a larger share of the agricultural subsidy

from the State Government. However, the PPAs allocation seems to have placed an undue

burden on DGVCL and MGVCL. Further, as the high cost PPA allocated to GUVNL are

shown as the source of supply to the three distribution licensees, the cost of supply to them

has become artificially high. As a matter of fact, the three bulk licensees‘ areas are entitled to

a fair share from energy pool of the State at its weighted average cost. After satisfactory

alternative arrangements are made the bulk licensees areas will go out of the State‘s energy

pool. The intent and purpose is to see that the retail consumers of various categories will be

charged, on an average, the same rates all over the State. From the submissions of the

27

Discoms, it is not clear whether PPA allocations have been approved by the State

Government.

During the public hearing, the representative of GUVNL stated that the PPA allocation has

not been approved by the State Government. The Commission too was not informed of the

allocation of capacities / PPAs except the mention of such allocation in the Tariff petitions of

the Discoms. The National Tariff Policy envisages that the concerned State Governments

would address issues relating to the allocation of PPAs. The Commission request the State

Government to carefully consider the question of allocation of PPAs. In Chapter 10, later in

the order, we have dealt with the general question of PPA allocation.

HERC had laid down the following approach in its orders:-

―Where a PPA/MOU exists, costs should be determined accordingly‖.

―In case of CPSU or other generators who are supplying power to more than one

state, where payments are governed by CERC or by Ministry of power Notifications,

tariffs should be forecast following the methodology adopted there‖.

―Where neither PPA nor rulings and Notifications are available for any reason,

projections can be made based on the latest available rates from invoices‖.

―Estimation should be made for various components separately and should use a

reasonable level of escalation in costs for those elements that are expected to undergo

changes.

The commission observes that the licensees have not complied with the general principles of

projecting power purchase costs set in the previous orders of the commission. Consequently,

the commission feels that the best approximation of power purchase cost would be the actual

annual average cost of power from various generating/trading sources.

The average cost of power for the distribution licensee in Haryana works out to Rs.

2.4179/Unit. In case the power purchase cost for the Distribution & Retail Supply (D&RS)

business due to escalation in the tariff of power sourced from CPSUs, fuel price adjustment

claimed by the intra-state generator (HPGCL) or change in the mix of power purchase

allowed by the commission on a projected basis, the licensee shall file FSA application as per

the FSA formula incorporated in the regulations approved by the commission on a half yearly

basis.

28

The Licensees of Maharashtra have submitted that the information provided by them is based

on interactions with Maharashtra Power Generating Co. Ltd (MSPGCL), MS Power

Transmission Company Limited (MSPTCL) and MP Power Trading Company Ltd. (MP 37

Tradeco). In this regard, the Licensees have also claimed that they have taken guidance from

Section 18 of the MERC (Power Purchase and Procurement) Regulations 2004 Revision 1,

2006 (RG-19(I) of 2006) which states that ―The Distribution Licensee shall make long-term

demand and supply availability assessments in consultation with any or all concerned

including state sector Generating Companies, Discoms, private Distribution Licensees,

central sector Generating Companies and Transmission Companies / Regional Electricity

Board, National / Regional Load Dispatch Centres, Central Electricity Authority.

The Distribution Licensees claim that they have considered available information from the

key sector participants for computation of power purchase cost for the purpose of arriving at

revenue requirement. The Distribution Licensees requested the Commission to take due

cognizance of this fact while computing allowable power purchase cost of the Licensees.

The East, West & Central Discoms have calculated the details related to the following items

as per the above allocation:

• Monthly energy available from all sources

• Annual fixed charge and energy charge payable to generators

• Estimated payment to generators on account of incentives, income tax, duties,

etc.; and

• Estimated inter-state transmission charges to be paid.

Merit Order Dispatch

It is submitted by GERC that in order to minimize the power purchase cost, discoms will

have to work out a comprehensive merit order dispatch (MOD) following the same principles

in accordance with the previous tariff order of the Commission from the dispatch available

from its capacity / PPA allocated generating stations.

In Gujarat the Nuclear Power Corporation (NPC) power plants and hydro power plants viz.,

Ukai, Kadana and SSNL hydro and NPC Tara pore have been considered as must run power

plants, and hence they have been excluded from merit order dispatch. The dispatch from

29

individual generating stations is worked out based on the merit order (based on the variable

cost) of each generating unit / station.

The Licensees of Maharashtra have claimed that they have adopted a merit order simulation

on monthly basis by matching monthly energy requirement with monthly 38 availability

based on the variable costs of power from various sources.The licensees have submitted that

while a monthly determination of cost provides an improved estimate over an annual

determination of cost, the actual cost will still differ based on the daily load curve and

variations of actual from projections. The licensees have further submitted that the cost of

such deviations as per different rates be passed on a regular monthly basis through the FCA

formulae proposed which is also in-line with the provision of the Tariff Policy which

specifies (Clause 5.3 (h) (4) and Clause 8.2.1(1)):

"Uncontrollable costs should be recovered speedily to ensure that future consumers are not

burdened with past costs. Uncontrollable costs would include (but not limited to) fuel costs,

costs on account of inflation, taxes and cess, variations in power purchase unit costs

including on account of hydro-thermal mix in case of adverse natural events. "

And "All power purchase costs need to be considered legitimate unless it is established that

the merit order principle has been violated or power has been purchased at unreasonable

rates.

The merit order has also revealed that in some months the availability remained unutilised by

the Discoms even after considering the intra-Discom trade. The Commission suggests that the

Discoms should use this surplus energy for banking with other States so that the shortfall, if

any, in the requirement in the Rabi season could be met from such banked power itself i.e.

without any cost implications. The Commission expects that the Discoms would avail the

opportunity of inter-State trading of surplus power only after fully meeting the demand of

their consumers.

30

6.3 DISTRIBUTION LOSSES:

Every Commission had given its serious thought and careful consideration for high level of

loss incurred by the distribution licensees. The SERCs have taken steps to improve the base

line data either by directing the DISCOMs to conduct various studies or by conducting

sample studies on their own. At first Commissions had fixed loss reduction trajectory. Then

the Commissions had judged the over or under performance of DISCOMs. The gains or

losses due to over or under improvement are to be accrued with Customers as well as the

DISCOMs. To implement open access in distribution, Commissions have asked DISCOMs to

file voltage wise losses so that the open access charges could be calculated. The

Commissions approach can be divided into Distribution losses & AT&C losses.

In case of DISCOMS where Agricultural consumption is predominant especially unmetered

agricultural consumption due care is taken by respective SERCs. The DISCOMs were

inflating the Agricultural unmetered consumption so that they could show lower losses. In

most of the cases the Flat rate Agricultural consumption is measured by LT side metering of

Distribution Transformer. Based on this, the annual per HP Normative consumption is fixed

for the particular period. The trend in actual losses & approved losses is given in tale as

below.

31

Distribution

Losses

Name of the

States

Distribution

Licenses 2007-08 2008-09 2009-10


Gujrat PGVCL 32.80% 30.22% 32.11% 30.00% 29% 28%

DGVCL 15.45% 15.59% 14.78% 14.45% 13.45% 13.45%

UGVCL 17.31% 16.74% 14.57% 14.57% 14.45% 14.45%

MGVCL 15.86% 16.74% 14.52% 14.52% 14% 14%

TPL (AD) 8.75%* 9.26%* 8.69% 10.43% 10.25% 8.54%

TPL (SD) 5.51% 6.00% 6.00% 5.51%

Haryana DHBVNL 24.52% 28.50% 21.83% 26% 24%

UHBVNL 28.79 28.50% 26.62 26% 24%

Maharashtra MSEDCL 24.09 24.15 22.2 22.2 21.2 18.2

Tpc‐d 2.21 2.21 0.61 2.93 2.93 0.66

Rel‐d 11.04 11 10.25 10.75

Best 10.4 10.27 10.5 10.5 10.5 10


32

Gujarat discoms have been very efficient in reducing the distribution losses in their areas.

Gujarat discoms have usually reduced the distribution losses even below the approved figures

given by GERC except in the year 2007-08. Discoms gave the reason that the increase in

losses is attributed to the increased hours of supply to agricultural category during the year,

which has resulted in more off take without any corresponding increase in the sales, as the

consumption being unmetered. GERC said that the increase in loss during 2007-08 cannot be

attributed to increase in supply hours to agricultural sector as the norm of 1700

kWh/HP/annum has margin to absorb the additional energy consumption due to increased

hours of supply. Further the total sales during the years 2005-06, 2006-07 and 2007-08 and

the percentage of consumption by agriculture and HT also do not justify the increase in loss.

The Commission directs that the all the discoms shall maintain the commendable work it has

done during the earlier years in reducing the distribution losses and improve further to

achieve the loss levels fixed by the commission.

HERC has directed the licensee to analyze the phenomenon of zigzag pattern of distribution

losses observed through various circles of the state except Gurgaon in order to verify te

correctness of the data being reported by the licensee to the commission but the licensee has

failed to do so. It is however encouraging to know that losses for FY 2008-09 do indicate

improvement in all the circle with overall distribution losses declining to 21.83% from

24.38% of previous year. HERC states that discoms have not submitted any report on the

special efforts carried out for the reduction of loss on feeders with very high losses as

discoms have filled in the aggregate revenue requirement for the year 2007-08 to spend

heavily to reduce losses.

The Maharashtra State Government has laid down milestones for distribution losses for the

period FY 2006-07 to FY 2010-11. The Commission has computed the energy requirement of

the Licensee on the basis of the GoMs‘s benchmark of distribution losses. The level of

distribution losses has been the major cause of concern year after year. The efforts made in

this regard lack a serious commitment and focus. The Commission while determining the

tariff has been allowing only normative level of losses in accordance with the milestones laid

down by GoMP, however, in this process, the losses above the normative level are borne by

the distribution licensees. The normative losses are those prescribed by the State Government

and are/were definitely achievable. The difference of actual losses and those prescribed

continues to be substantial. As cost of power purchase accounts for 75% to 80% of total cost

incurred by Distribution Licensees, the large difference in actual and normative losses is

33

causing severe strain on financial position of these companies. In a short span of less than 4

years of their creation, these companies appear to have become financially sick. Their

capacity to serve efficiently is constrained by a perennial cash shortage. Despite repeated

directives, the Capex implementation of all Discoms continues to be extremely poor. Even

after 4 years of their coming in existence, an effective planning cell is yet to be formed. Poor

Capex implementation and planning coupled with sharper increase in demand, in the opinion

of the Commission, has further increased the technical loss component in place of its

reduction. Efforts made to reduce commercial losses have neither been adequate nor have

made much impact on the level of these losses. When viewed in the backdrop of

achievements of private and Government owned distribution companies in most of other

States, performance of distribution companies in our State is dismal. The Commission under

section 86(2)(i) of the Electricity Act, 2003, shall separately advise the State Government to

set up a monitoring mechanism for overseeing the Capex planning and implementation,

identification of high commercial loss areas and strategies for reduction of these losses. The

Commission itself shall review the activities and performance related to above areas after

each quarter. The distribution companies are directed to make all out efforts to show definite

improvement lest this malady starts threatening their very existence.

6.4 CAPITAL EXPENDITURE:

After enactment of EA 2003 & unbundling of SEBs the capital expenditure has been

increased. Most of the capital expenditure of state owned Utilities is funded through central

government schemes like APDRP, RGGVY, Rural electrification, System Improvement &

HVDS etc. The state government also through budgetary provisions is funding towards

Capital work. The capital work is necessary to strengthen the T & D network to support the

expected increase in generation by 2012 (considering made availability of supply). Even

Funds in the form of loan are available from World Bank, Asian Development Bank also. In

the initial years (in FY 2004-05 & 2005-06 specially) of tariff petitions the DISCOMs have

proposed huge amount towards capital expenditure. The Regulatory Commissions if had

agreed the Capital expenses would have finally burdened on the consumers. Also comparing

to the lower revenue collection the capital work would have hampered the financial viability

of the DISCOMs. As the trend is set by Commission for approval of CAPEX then the

DISCOMs have also filed more systematic & scheme wise details while seeking approval

from Commission. The Regulatory Commissions have approved the capital expenditures

34

based on historical actual trend in CAPEX capitalized & also the impact of such investment

in reduction in T&D losses.

6.5 CAPITAL STRUCTURE:

Capital Structure includes Debt component & equity component. The utility is allowed to get

reasonable return on the capital investment done. The normative Debt equity ratio is 70:30.

HERC has approved DE ratio of 70:30 for calculating return on capital employed for the

projects for which investment approval is accorded on or after 01/04/2007. And if equity is

higher than 30% then it will be treated as notional loan. But if equity is less than 30% then

actual equity should be taken.

GERC has allowed normative 70:30 DE ratio to calculate ROE. The total capital investment

is divided into normative 70:30 ratio to find out the rate of return. MPERC has also adopted

normative 70:30 Debt equity ratio.

6.6 DEPRECIATION:

Depreciation is directly related to the capital assets. The Original Cost of Fixed Assets

(OCFA) and capitalization of capital works form the basis of the Fixed Assets. For Electricity

industry, the depreciation rates are the rates, notified by the Ministry of Power, Government

of India(rates specified in 1992 & 1994), rates specified by the CERC which are generally

accepted by the SERCs & are issued in their tariff regulations. Depreciation is applied on the

opening balances of the Fixed Assets for the ensuing year at specific rates applicable to

particular assets subject to a limit of 90% of the Fixed Asset value (the balance being treated

as scrap value). In this regard, the crucial factor that varies the computations is the additions

to the Fixed Assets which are entirely dependent on the capitalization of the Capital Works-

in-progress during the year.

35

Depreciation(Rs. in Lacs)

Name of the

States

Distribution

Licenses 2007-08 2008-09 2009-10


Gujrat PGVCL 11,235 11438 12697 12793 21530 21809

DGVCL 4,978 5646 5717 5813 9537 9821

UGVCL 7 ,021 7380 7835 7824 12664 12633

MGVCL 4,703 4557 5448 5543 9390 9664

TPL (AD) 10990* 10990* 6148 6148 7555 7471

TPL (SD) 3297 3297 3978 3891

Haryana DHBVNL 9165.3 8485.6 11709.6 8832.8 15173.6 9096.9

UHBVNL 10777.1 10777.1 15825 13914.2 17832.8 12809.8


Tpc‐d 1404 1404 1601 1602 1879 1729

Rel‐d 4039 4039 4500 4278 4966 4530

Best 51467 48888 57233 50936 62816 49872


36

GERC states that the net addition to assets implies the total amount capitalized by the utility

and not the capital expenditure incurred during any financial year. The Commission has

assumed that utility would be able to capitalize the capital expenditure as projected and

accordingly approved the depreciation.

PGVCL has mentioned that depreciation has been calculated based on the rates specified by

CERC for various assets in the power sector including distribution assets. It is found that

depreciation has been calculated taking into consideration the opening balance of assets at the

beginning of the year and proposed capitalisation i.e. additional assets proposed to be brought

into use during the control period. The actual average rate of depreciation worked out to

3.64% and the same rate has been adopted for projections during the control period.

HERC approved depreciation of Rs. 1280.98 million for year 2009-10 to be utilized towards

meeting the capital loans repayment of Rs. 800.36 million. The balance amount of Rs. 480.62

million shall be available with the commission for meeting out any revenue gap that may

emerge in the ARR under consideration. To allay the fears of the interveners that depreciation

is also allowed by the commission on assets not in use it‘s pointed out that the methodology

adopted by the commission for estimating depreciation amount as well as interest during

construction ensures that those assets have entered the income earning stream or likely to be

commissioned during the year as part of the distribution and retail supply business only

qualify for depreciation and the balance forms part of capital work in progress.

In Maharashtra according to the East Discom, depreciation has been computed on the

opening balance of GFA of depreciable assets as per the notified opening balance sheet. The

percentage to which assets in each sub-category is depreciable has been computed as on 31st

May 2005 and has been estimated on the basis of year-wise asset addition data of MPSEB

from 1985-86 to 2004-05.

Further, depreciation on asset added during each year thereafter has been computed on the

basis of projected capitalization in each such year as presented in the section on capital

expenditure of this Order. The Licensee‘s petition does not clarify how each year‘s projected

capitalization has been distributed into different asset classes for the purpose of charging

depreciation. The depreciation has been claimed on the basis of rates notified by the Ministry

of Power under notification S.O.265 (E) dated 27th March 1994. The Licensee has requested

37

the Commission to consider these rates instead of the CERC rates as the CERC rates do not

reflect the lower economic life of distribution assets, as opposed to transmission assets.

The Commission has also noted that West Discom has made depreciation claims based on the

final balance sheet notified by GoMP on 12th June 2008. However, as described earlier, the

Commission has considered the additions done during FY 2008- 09 over the audited figures

of FY 2007-08 as its base for working out depreciation claims which do not contain the

impact of the final opening balance sheet, thus the impact of final opening balance sheet

notified on 12th June 2008 sheets has not been taken into account in this order.

It is important to note here that if the East Discom‘s claims of depreciation are allowed as

such, there is likelihood that depreciation shall be permitted on those assets which are already

depreciated up to 90% of their historical cost. Consequently, the consumers of the East

Discom would pay, through tariffs, depreciation on such assets as well, which cannot be

permitted. Therefore, in absence of any other suitable method, the Commission, acting in the

interests of the consumers, is allowing depreciation to the East Discom based on the

depreciation rate of Central Discom.

With regard to the value of the asset base, the Commission has dwelt at length on the reasons

for not considering the projections of asset addition made by the Licensee for FY 2009-10 as

these appear to be inflated and not in conformity with the past trend. Consequently,

deprecation for FY 2009-10 is not likely to deviate much from the depreciation available for

FY 2008-09. For FY 2009-10 the Commission, has therefore, computed depreciation on the

closing balance of assets existing as on 31st March 2008 plus the progress reported by

Licensees till 31st March, 2009 and no projected asset additions for FY 2009-10 have been

considered.

The MPERC has allowed depreciation rate as per the CERC regulations. For the FY 2004-05

the Commission has utilized the services of an independent CA firm to verify the gross block

and depreciation figures submitted by the Licensee in the Tariff petition with the

corresponding figures in the trial balances maintained by the Licensee. The weighted average

rate of 4.85% proposed for FY 2004-05 is in line with the historic trend of depreciation. From

FY 2006-07 to FY 2008-09 the Commission has allowed CERC rates.

38

6.7 RATE OF RETURN (ROE OR ROCE):

The ROCE is allowed on the Net Capital base (Asset base or regulated rate base) for the

ensuing year. The Capital Base of the Licensees is divided into two parts - the positive part

and the negative part, to derive the net capital base on which a return is provided. The

positive part consists of the original cost of fixed assets (OCFA) excluding consumer

contributions; intangible assets; the original cost of Capital Works-in-Progress (CWIP);

compulsory investments, and working capital. On the negative side are depicted, the

matching financials of the assets created, like Accumulated depreciation, loans from

Government and other approved institutions, consumer deposits by way of security and

amounts outstanding in the Tariffs and Dividends Control Reserve and Development Reserve

at the close of the year. The ROE is allowed on the average of opening& closing equity &

free reserves for the ensuing year. The total capital is normatively divided in the ratio of

70:30 & the equity component is calculated to derive Return on Equity to be allowed.

Gujarat state‘s terms and condition of Tariff states that -

“The tariff shall be fixed in such a manner that a licensee ordinarily in any financial year

will earn a permissible return which shall comprise of 14% on equity invested into capital

expenditure (apportioned to the quantum for the purpose of performing the business

electricity in the present debt equity structure) plus permitted incentives minus penalties

levied under the Act / Regulations for that year.”

39

Return on

Equity(Rs. in

Lacs)

Name of the

States

Distribution

Licenses 2007-08 2008-09 2009-10


Gujrat PGVCL 6874 6923 14279 14239 15750 15670

DGVCL 2326 2326 4758 4872 5112 5340

UGVCL 3729 3563 7926 7914 8500 8475

MGVCL 2662 2704 5756 5866 6378 6597

TPL (AD) 20621* 20065* 11352 11352 12688 12744

TPL (SD) 6477 6477 7164 7114

Haryana DHBVNL 0 0 8135.7 0 9681.7 0

UHBVNL 1121.7 426.2 10973 0 12630.8 0


Tpc‐d 2161 2149 2470 2285 3456 2353

Rel‐d 13391 10506 11960 10543 12700 10860

Best 87923 80026 97482 82806 94327 66596


40

Return on Equity as % of ARR(Rs. in Lacs)

Name of the

States

Distribution

Licenses 2007-08 2008-09 2009-10

Gujrat PGVCL 1.490101 2.560782 2.489544

DGVCL 0.6262 1.104288 1.028327

UGVCL 1.123738 1.84514 1.773316

MGVCL 1.275723 2.140183 2.09911

Haryana DHBVNL 1.77055 1.927975

UHBVNL 0.315297 2.299807 2.257464

Maharashtra MSEDCL 2.65 2.60 2.73

Tpc‐d 1.72 1.73 1.98

Rel‐d 4.24 4.61

Best 5.11 3.60 3.98

41

Gujarat discoms generally computed the return on equity @ 14% on average equity based

upon the opening balance of equity and normative additions during the year, which has been

arrived at by considering 30% of the capital expenditure net of consumer contribution and

grants as funded from equity. The Commission has considered the opening equity as per the

provisional accounts.

For the purpose of equity addition during the year, the Commission has considered

capitalised cost instead of capital expenditure as considered by the petitioner. The

Commission has also deducted consumer contribution and Government grants to arrive at the

normative equity portion of allowable capitalised cost.

For the FY 2008-09 the PGVCL has prayed to approve the full amount of return on equity

claimed at the rate of 14% as enshrined in the GERC (Terms and Conditions of Tariff)

Regulations, 2005. In this regard PGVCL has referred to a letter from the Union Minister of

Power, wherein Government of India asked the State Government to ensure full returns on

equity to power utilities vide letter No. 45/2/206 R&R / (P1) / 1039-70 / VIP dated 8th

February 2008. The addition of equity projected for the control period is in accordance with

the sources of funding the capital expenditure. The rate of return of equity projected is 14%

which is as per the GERC Regulatiion.

Tariff regulation of HERC states that RoR regulation of tariffs sets the appropriate rate of

return on capital (both debt and Equity funds). This rate of return should adequately

compensate investors for the risks they assume by committing capital to the power sector or

an individual utility. Thus the return, which investors require on their investment, should at

least be equal to return on other investments with comparable risk factor.

The existing tariff regulations of the commission (HERC) do not provide for any return on

equity but provides foe return on capital base which is negative for year 2008-09 and 2009-10

as submitted by the discoms. Consequently no Return on Equity or Capital Base has been

considered by the commission for these years.

MPERC for FY 2004-05 has allowed 3% reasonable return on the net fixed asset for MPSEB.

From FY 2006-07 to FY 2008-09 the Commission has allowed 14% ROE on net fixed assets.

The Madhya Pradesh Discoms have claimed return at the rate of 14% on equity projected to

be employed in completed assets in FY 2009-10. For computing RoE, the Licensees has

determined the total capitalisation of assets projected during FY 2009-10 and worked out the

42

component proposed to be capitalised from equity funding. The projected equity

capitalization is then compared with normative level of 30% to determine the equity

capitalization eligible for RoE. Commission studied the process of identification of debt and

equity with completed assets. This process results in the total equity identified with GFA as at

the end of FY 2007-08. This is presented in the table below. The Return on Equity as allowed

for FY 2009-10 ARR is then determined by applying the Commission specified rate of 14%

on the total equity identified as allocated to GFA. The Commission is aware that during the

course of FY 2009-10, additional equity shall be infused into the distribution business for the

purpose of creation of assets, which will increase the amount of equity allocated to completed

assets. This, if supported by audited accounts, shall be accounted for in future aggregate

revenue requirements of the Licensee.

6.8 INTEREST AND FINANCE CHARGES:

Approved interest on loans is directly related to the loans taken into the Capital Base

computations. The loans drawn for CAPEX and interest thereon are a pass-through in the

tariffs. The interest rates are computed on the basis of the rates on loans filed by the

Licensees for the current year and the ensuing year. Lease rentals and other finance charges

are also included under this heading. Other finance charges include discounts to consumers,

such as, incentive, etc. The weighted average rate of interest & normative repayments so

worked out is taken to the ARR. The SERCs analyses the source wise break up of loan &

interest thereon. All the Commissions had considered actual loan portfolio & interest to be

paid for such project. Capital projects are being funded from loan, consumer contribution,

depreciation (internal accruals) & Govt. grant & loans etc.

43

Interest & Finance Charges (Rs. in Lacs)

Name of the

States

Distribution

Licenses 2007-08 2008-09 2009-10


Gujrat PGVCL 15725 13324 15936 7924 17078 10144

DGVCL 8414 6861 8892 5759 9095 5612

UGVCL 11468 8159 11663 7581 7905 3894

MGVCL 7041 6328 7072 4210 7514 4230

TPL (AD) 4954* 4954* 4839 4839 6076 6190

TPL (SD) 4670 4670 5792 5519

Haryana DHBVNL 5110.4 4366.1 11237 3984.9 5641 8759

UHBVNL 3156.8 3156.8 4008.7 1167.2 3764.1


Tpc‐d 2239 2515 2983 2546 4580 2652

Rel‐d 12089 10442 14689 11558

Best 4033 2302 5300 2953 3900 3542


44

The Commission (GERC) has taken note that Interest and Finance charges approved in MYT

Order had an element of Interest on Working Capital which is claimed separately on

normative basis. The petitioner, while claiming the Interest and Finance charges has deducted

the Interest on Working Capital to avoid the double counting. However, the Commission

feels that it is not a correct approach, rather than deducting Interest on Working capital from

the total Interest and Finance charges the principal loan amount shall be segregated.

Accordingly, the Commission has segregated the opening balance in proportion to the actual

interest paid for capital expenditure and interest paid for financing working capital. The

Commission has considered the interest rate of 10% as considered in MYT Order for

estimating the interest cost for FY 2009-10.

The HERC states that the capitalisation of interest during construction is in accordance with

the AS 16 issued by the Institute of Chartered Accountants of India wherein interest on

borrowed capital is capitalised till the date of commissioning of assets. The date of

commissioning of asset is assumed to be the last day of operation of the year as per the fixed

assets register. Interest on loan component of opening balance of CWIP for FY 2008-09 is

capitalised for the full year and interest on new borrowings for additions to capital works

during FY 2008-09 is capitalised for 6 months that the loans are disbursed uniformly during

the year.

The MERC for the FY 2004-05 to FY 2006-07 has reworked the interest expenses based on

the opening balance sheets available in the provisional transfer scheme and allowable

borrowings and repayments there on. The Commission has considered the investments

capitalized in FY 2004-05 as approved new borrowings for determining the interest

expenditure. The Commission is of the view that the disallowed borrowings would have a

moratorium period of three years and hence considered the repayments as per the

submissions made in the Petition without any adjustments. However, the Commission feels

that there would be linkages between repayments and new borrowings in instances like debt

restructuring etc.

45

6.9 INTEREST ON WORKING CAPITAL:

Working capital is required to maintain cash flow liquid. Usually the SERCs have taken

working capital as a % of O&M expenses, average cost of store & average cash & bank

balance etc. The interest rate for working capital is the short term Prime Lending Rate of

State Bank of India.

The Gujarat discoms have estimated interest on a normative working capital in accordance

with the GERC Tariff Regulations. However, instead of considering Revenues for two

months, revenues of the company for only one month has been considered for projecting the

total working capital during the FY 2009-10. The petitioner has computed the interest on

working capital at current short-term prime lending rate of SBI i.e. 10.25%. Discoms have

further submitted that interest on working capital has been calculated based on the normative

working methodology as specified by the Commission in its Terms and Conditions of Tariff

Regulations. However, instead of considering Revenues for two months, revenues of the

company for only one month has been considered for projecting the total working capital

during the FY 2009-10. The Commission has estimated the working capital as per clause No.

66 of GERC terms and conditions of tariff and accordingly considered the Operation and

maintenance expenses for one month; Maintenance spares @ 1% of the historical cost

escalated @ 6% per annum from the date of commercial operation; and Receivables

equivalent to one months of sales (in line with the same proposed by the petitioner). Further,

the estimation is based on the O & M, historical costs and sales as approved by the

Commission in this tariff order. According to Regulation 20 (v) (b), the Commission, in its

MYT Order dated Jan 17, 2009 has taken the rate of interest on working capital equal to the

short-term prime lending rate of SBI as on 01/04/2004, which was 10.25%.

In Haryana DHBVNL has proposed interest of Rs. 1216.56 million on working capital

borrowing of Rs. 9372.39 million for FY 2008-09. The commission (HERC) allows working

capital borrowings limited to 1 month of ARR as per orders of the Hon‘ble Appellate

Tribunal for Electricity dated 10/11/2006, which works out to approximately Rs. 2800

million.

The MERC has recalculated the interest on working capital FY 2004-05 based on the

principles of FY 2003-04 Tariff Order. Accordingly, working capital has been considered as

0.75*(Current Assets – Current Liabilities), where current assets are 2 months of receivables

and 15 days of generation costs and current liabilities are 1 month of fuel expenses. The

46

Commission has considered interest rate of 10.25% as submitted in the filings, which is the

prevailing Prime Lending Rate (PLR) of State Bank of India as prescribed in the MERC

Tariff Regulations, 2005 to determine the interest on working capital. The same approach

was followed by MERC for FY 2005-06 & FY 2006-07.

MERC states that as per terms & conditions of tariff regulation of Madhya Pradesh, working

capital for supply activity of the Licensee shall consist of:

Power purchase cost of one month and receivables of two months of average billing

reduced by any consumer security deposit,

O&M expenses for one month, and

Inventory (meters, metering equipment, testing equipment are particularly relevant in

case of supply activity) for 2 months based on annual requirement for previous year.

Working capital for wheeling activity of the Licensee shall consist of

O&M expenses for one month, and

Inventory (excluding meters, etc. considered part of supply activity) for 2 months

based on annual requirement considered at 1% of the gross fixed assets for previous

year.

Working capital shall be computed as provided in these Regulations and Rate of interest on

working capital shall be equal to the State Bank of India Advance Rate as on April 1 of the

relevant Year. The interest on working capital shall be payable on normative basis

notwithstanding that the Licensee has not taken working capital loan from any outside agency

or has borrowed in excess of the working capital loan computed on normative basis.

The MERC has recalculated the interest on working capital FY 2004-05 based on the

47

Interest on Working Capital(Rs. in Lacs)

Name of the

States

Distribution

Licenses 2007-08 2008-09 2009-10


Gujrat PGVCL 4049 1609 5538 4758 6950 4328

DGVCL 3307 1637 3972 3814 4537 3610

UGVCL 2779 1222 4091 3443 4027 2930

MGVCL 2057 909 2623 2350 2671 2273

TPL (AD) 8545* 6594* 40 2074 3922 2067

TPL (SD) 101 2452 2200 2055

Haryana DHBVNL 2411.3 1327.5 12165.6 1821.9 18746.6 4781.3

UHBVNL 11576.3 1745.7 23270.1 2866.5 30625.5 4462.5


Tpc‐d 39500 39500 43631 43632 52330 48304

Rel‐d 234739 234739 276238 258889

Best 115700 115700 130900 124400 143500 131000


48

6.10 OPERATION & MAINTENANCE EXPENSES:

The O&M expenses have three components.

1. Employee expenses

2. A&G expenses

3. R& M expenses

The employee expenses includes following components.

1. Salaries

2. Overtime

3. Dearness allowance

4. Other allowance

5. Bonus

6. Medical expenses

7. Earned leave encashment

8. Payment under workmen compensation Act

9. Payment to helpers/Employees of storm & monsoon gang

10. Staff Welfare expenses

11. Terminal Benefits

12. Increase in employee cost on account of pay revision

The A&G expenses includes following components.

1. Rent rates & taxes

2. Security arrangement

3. Telephone, Electricity, Water & Postage charges

4. Legal, audit, consultancy & other professional charges

49

5. Travelling, Conveyance & vehicle charges

6. Vehicle license & registration charges

7. Books, periodical, computer stationary & printing stationary

8. Staff expenses

9. Freight

The A&G expenses also include licensee & Expected Revenue Charges (ERC) filing fees &

other purchase related expenses.

The R&M expenses include expenses on maintenance of T&D network. It includes

1. Repairs and maintenance of plant machinery, vehicles, furniture and fixtures, office

equipment, line materials and cables,

2. Transformers and related equipment, meters and metering equipment etc.

The various approached held to estimate the O&M expenses are explained as follows:

Historical Trend Method-

Based on the actual O&M expenses the CAGR is calculated & the O&M expenses are

approved following the trend. The past period whose actual data is available is considered

like data for 3 years, 5 years.

WPI & CPI Indexed costs-

MPERC in its MYT order has calculated O&M expenses permissible towards ARR for each

year of the Control Period using the formula detailed below. The R&M expenses are linked to

the Gross Fixed Assets, while the employee expenses and A&G expenses are linked to an

Inflation Index, as shown below:

(a) O&Mn = (R&Mn + EMPn + A&Gn)* (1 – Xn)

(i) Where, R&Mn = K*GFAn-1;

(ii) EMPn + A&Gn = (EMPn-1 + A&Gn-1)*(INDXn/ INDXn-1); and

(iii) INDXn = 0.55*CPIn + 0.45*WPIn

50

Where

(b) K‘ is a constant (could be expressed in %) governing the relationship between O&M costs

and gross fixed assets (GFA) for the nth year. Value of K will be determined by the

Commission in the MYT Tariff order based on Licensee‘s filing, benchmarking, approved

cost by the Commission in past and any other factor the Commission feels appropriate;

(c) INDXn - Inflation Factor to be used for indexing can be taken as a combination of the

Consumer Price Index (CPI) and the Wholesale Price Index (WPI) for immediately preceding

five years;

(d) EMPn – Employee Costs of the Licensee for the nth year;

(e) A&Gn – Administrative and General Costs of the Licensee for the nth year;

(f) R&Mn – Repair and Maintenance Costs of the Licensee for the nth year;

(g) Xn is an efficiency factor for nth year. Value of Xn will be determined by the

Commission in the MYT Tariff order based on Licensee‘s filing, benchmarking, approved

cost by the Commission in past and any other factor the Commission feels appropriate.

Composite output Formula (Direct linkage to T&D network)-

APERC had carried out a comprehensive benchmarking exercise to arrive at the O&M cost

for each of the licensees for each year of the control period under MYT framework. For this

exercise, the Commission also considered the relative performance of distribution licensees in

other States and of the distribution circles within the State. It was observed from the

comparative benchmarking exercise that the AP DISCOMs are comparatively efficient and

hence the Commission carried out an inter-se comparative benchmarking exercise confined to

the APDISCOMs for the O&M costs. The methodology adopted by the Commission for the

benchmarking exercise is as follows:

Firstly, in line with the performance-based regulation, the Commission finalized the

DISCOM outputs or parameters that would be the cost drivers for O&M expenses. These

parameters comprise energy sold by the DISCOMs, number of consumers served and length

of the lines (as a proxy for expanse) to be maintained by the licensees. Secondly, these

parameters were consolidated into one single output, which is termed as ―Composite

51

Output‖ and the same has been compared with O&M costs across all DISCOMs. The

Composite Output adopted is as follows:

Composite Output = (no. of consumers) a * (energy sales in MU) b * (ckt km of line length)

c,

Where ‗a‘, ‗b‘ and ‗c‘ denote respectively the weight age of 55%, 20% and 25% to the

respective parameters. Similar exercise is carried out by MPERC to determine the O&M

expenses.

The O&M expenses have been dealt by SERCs by different ways. The O&M expenses as

approved & actual are given here below:

The MERC has used CAGR, historical trend based method from the FY 2004-05 to FY 2006-

07. The CAGR for past five year is considered. In MYT orders (for FY 2007-08 to 209-10)

MERC has used WPI & CPI index method.

52

O & M(Rs. in Lacs)

Name of the

States

Distribution

Licenses 2007-08 2008-09 2009-10


Gujrat PGVCL 42711 36579 50689 38768 53060 42654

DGVCL 18469 12958 19353 15310 20276 18002

UGVCL 29214 22079 32,792 29,672 34520 32197

MGVCL 23903 19186 27680 20051 29067 29340

TPL (AD) 35366* 34676* 16311 16757 18537 17763

TPL (SD) 7391 8484 9108 8992

Haryana DHBVNL 26732.5 26732.3 39081 35885.6 66095.8 46429.1

UHBVNL 36754.1 35335.1 62121 45860.5 72597.6 49829.3


Tpc‐d 3515 3263 4228 3465 5658 3672

Rel‐d 51571 49981 54579 53223

Best 25755 22751 27201 24273 29470 25898


53

O & M as % of

ARR(Rs. in Lacs)

Name of the States Distribution Licenses 2007-08 2008-09 2009-10

Gujrat PGVCL 9.258613 9.090518 8.386997

DGVCL 4.972176 4.491652 4.07871

UGVCL 8.803667 7.63384 7.201749

MGVCL 11.45515 10.29191 9.566454

Haryana DHBVNL 7.698058 8.50509 13.16205

UHBVNL 10.33116 13.0198 12.97515


Tpc‐d 2.79857 2.969101 3.247991

Rel‐d 12.26129 12.48947

Best 9.822654 8.193172 9.229565


54

55

Employee

Cost(Rs. in

Lacs)

Name of the

States

Distribution

Licenses 2007-08 2008-09 2009-10


Gujrat PGVCL 29020 24526 35919 27469 36963 27270

DGVCL 12461 9186 14897 11257 15424 12154

UGVCL 18698 14229 23,436 21,744 24295 23508

MGVCL 16831 12865 20289 14174 21006 21475

TPL (AD) 13774* 13774* 6493 6262 7412 6638

TPL (SD) 3330 3368 3686 3570

Haryana DHBVNL 20218.4 20218.4 26792.9 26548 48574.5 35130.2

UHBVNL 29578 29838.3 54795.2 36572.9 60064.7 41166.1

Maharashtra MSEDCL

Tpc‐d

Rel‐d

Best


56

EC as % of ARR

Name of the

States

Distribution

Licenses 2007-08 2008-09 2009-10

Gujrat PGVCL 6.290767 6.44168 5.842604

DGVCL 3.354718 3.457455 3.102684

UGVCL 5.63466 5.455803 5.068554

MGVCL 8.066 7.543809 6.913439

Haryana DHBVNL 5.822217 5.830865 9.672929

UHBVNL 8.314039 11.48441 10.73518

Maharashtra MSEDCL

Tpc‐d

Rel‐d

Best


57

the combined data of TPL(G), TPL(Surat) &TPL(Ahmadabad)

R&M(Rs. in

Lacs)

Name of the

States

Distribution

Licenses 2007-08 2008-09 2009-10


Gujrat PGVCL 8192 6575 7317 6652 8048 9205

DGVCL 3556 1690 2014 2033 2215 3093

UGVCL 7586 4755 5,993 5,091 6593 5397

MGVCL 3846 3987 3917 3298 4309 4240

TPL (AD) 13489* 13489* 7047 7320 7760 7760

TPL (SD) 2155 2651 2810 2810

Haryana DHBVNL 4062.8 4062.6 7719.5 5937.8 9169.3 4662.9

UHBVNL 5299.4 3620.1 3540.4 6514 8734.2 4864.5

Maharashtra MSEDCL

Tpc‐d

Rel‐d

Best

58

R&M as % of GFA

Name of the

States

Distribution

Licenses 2007-08 2008-09 2009-10

Gujrat PGVCL 2.825821 2.241343 1.970559

DGVCL 2.761599 1.339648 1.332235

UGVCL 4.210304 2.932929 2.735435

MGVCL 3.232748 2.814907 2.648449

Haryana DHBVNL 3.454753 4.990781 4.616799

UHBVNL 3.388526 1.743649 3.325161


Tpc‐d 2.291139 2.186519 2.725014

Rel‐d 5.759162 5.099588

Best 2.674157 2.553094 2.418118

59

A&G(Rs. in Lacs)

Name of the

States

Distribution

Licenses 2007-08 2008-09 2009-10


Gujrat PGVCL 5499 5478 7453 4647 8049 6179

DGVCL 2452 2082 2442 2020 2637 2755

UGVCL 2930 3095 3,363 2,837 3632 3292

MGVCL 3226 2334 3474 2579 3752 3625

TPL (AD) 8133* 7413* 2771 3175 3365 3365

TPL (SD) 1906 2465 2612 2612

Haryana DHBVNL 2451.3 2451.3 4568.6 3399.8 8352 6636

UHBVNL 1876.7 1876.7 3785.4 2773.6 3798.7 3798.7

Maharashtra MSEDCL

Tpc‐d

Rel‐d

Best


60

A&G as % of ARR

Name of the

States

Distribution

Licenses 2007-08 2008-09 2009-10

Gujrat PGVCL 1.1920375 1.336614 1.2722755

DGVCL 0.6601211 0.566766 0.5304576

UGVCL 0.8829583 0.782892 0.7577275

MGVCL 1.5460113 1.291695 1.2348483

TPL (AD) 0.7058917 0.994252 1.6631834

TPL (SD) 0.527519 0.793374 0.67893

Haryana DHBVNL 0.7058917 0.994252 1.6631834

UHBVNL 0.527519 0.793374 0.67893


61

7. IMPACT OF STANDARD OF PERFORMANCE ON TARIFF

7.1 Standards of Performance

While reforms are being put in place; the importance of establishing high quality service

rendered to the customer has been realized. The realization has been more acute where

the utilities have to compete with each other for enhancing their customer base. The

private sector utilities have been quick enough to utilize various internationally accepted

tools for quality enhancement. Even, in recently unbundled SEBs, the mechanism for

collecting the data for analysis of Power supply quality do exist, however it is not

standardized and in most of the cases, not fully utilized.

Hence the state regulator has specified the standard of performance applicable to the

distribution Licensees which is based on commonly followed international practices.

Provision in Electricity Act 2003

Section 57, 58 and 59 of Electricity Act 2003 provides that the Appropriate Commission

may, after consultation with licensees and persons likely to be affected, make regulations

regarding standard of performance of a licensee or a class of licensees. It also provides

that if a licensee fails to meet a specified standard, it shall pay compensation to the person

affected by such failure.

Sections 57, 58 and 59 of EA 2003 read as follows:

57. Standard of performance of Licensee

(1) The Appropriate Commission may, after consultation with the licensees and persons

likely to be affected, specify standards of performance of a licensee or a class of

licensees.

(2) If a licensee fails to meet the standards specified under sub-section (1), without any

prejudice to any penalty which may be imposed or prosecution be initiated, he shall be

liable to pay such compensation to the person affected as may be determined by the

Appropriate Commission.

(3) The Compensation determined under sub-section (2) shall be paid by the concerned

licensee within 90 days of such determination.

62

58. Different standards of performance by licensee

The Appropriate Commission may specify different standards under subsection (1) of

section 57 for a class or classes of licensees.

59.Information with respect to levels of performance

(1) Every Licensee shall, within the period specified by the Appropriate

Commission, furnish to the Commission the following information, namely:

a) the level of performance achieved under sub section (1) of section 57

b) The number of cases in which the compensation was made under sub-section (1) of

section 57 and the aggregate amount of compensation.

(2) The Appropriate Commission shall at least once in every year arrange for publication

in such form and manner as it considers appropriate, of such of the information furnished

to it under sub-section (1).

7.2 Title, Extent and Commencement:

Gujrat:

1. These Regulations may be called the Gujarat Electricity Regulatory Commission

(Standard of Performance of Distribution Licensee)Regulations, 2005

2. These Regulations shall be applicable to all Licensees engaged in distribution of

electricity in the State of Gujarat.

3. These Regulations shall come in force from the date of their publication in

the Gazette.

63

Haryana:

1. These regulations may be called the Haryana Electricity Regulatory Commission

(Standards of Performance for the Distribution Licensee) Regulations, 2004.

2. These regulations shall be applicable to all licensees engaged in distribution &

retail supply of electricity in the State of Haryana.

3. These regulations shall extend to the State of Haryana.

4. These regulations shall come into force on the date of their publication in the

Haryana Government. Gazette. The Punjab General Clauses Act 1898 (Act 1 of

1898), as applicable to the state of Haryana shall apply to the interpretation of

these regulations.

Maharashtra:

1. These Regulations may be called the “Maharashtra Electricity Regulatory

Commission (Standards of Performance of Distribution Licensees, Period for

Giving Supply and Determination of Compensation) Regulations, 2010”.

2. (The “Maharashtra Electricity Regulatory Commission (Standards of Performance

of Distribution Licensees, Period for Giving Supply and Determination of

Compensation) Regulations, 2005”are hereby repealed.

3. These Regulations shall extend to the whole of the State of Maharashtra.

4. These Regulations are applicable to all Distribution Licensees, Deemed Licensees,

Retail Supply Licensees, Franchisees and any other agency engaged in

distribution of supply.

5. These Regulations shall come into force from the date of their publication in the

Official Gazette.

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8. PARAMETERS OF STANDARD OF PERFORMANCE:

The important points which are considered by different SERC’S for the Standard of

performance are as follows:

8.1. RELIABILITY OF THE SYSTEM

The following reliability/outage indices are prescribed by the Institute of Electrical and

Electronics Engineers (IEEE) Standard 1366 of 1998. The Licensee shall compute and report

the value of these indices from 2002-03 onwards:

(a) System Average Interruption Frequency Index (SAIFI): The Licensee shall calculate

the value according to the formula and methodology specified below.

(b) System Average Interruption Duration Index (SAIDI): The Licensee shall calculate

the value according to the formula and methodology specified below.

(c) Momentary Average Interruption Frequency Index (MAIFI): The Licensee shall

calculate the value according to the formula and methodology specified below.

Method to compute Distribution System Reliability Indices:

The Indices shall be computed for the Distribution licensee as a whole by stacking, for each

month, all the 11 KV feeders in the supply area, excluding those serving predominantly

agricultural loads, and then aggregating the number and duration of all interruptions in that

month for each feeder. The Indices would then be computed using the following formula:

Where,

Ai = Total number of sustained interruptions (each longer than 5 minutes) on

ith feeder for the month

Ni = Connected load of ith feeder affected due to each interruption

Nt = Total connected load at 11KV in the Distribution licensee’s supply area

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n = Number of 11KV feeders in the licensed area of supply (excluding those

Where,

Bi = Total duration of all sustained interruptions on ith feeder for the

month.

Ci = Total number of momentary interruptions (each less than or

equal to 5 minutes) on ith feeder for the month

8.2. Exemption

The standards of performance specified in these regulations shall remain suspended during

Force Majeure conditions such as war, mutiny, civil commotion, riot, flood, cyclone,

lightning, earthquake or other causes beyond the control of the Licensee and strike, lockout,

fire affecting the licensee’s installations and activities.

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8.3 INFORMATION REGARDING LEVEL OF PERFORMANCE:

Gujrat:

The Licensee shall furnish to the Commission, in a report specified in these

Regulations for every quarterly as well as in a consolidated annual report for each

financial year, the following information as to the Standards of Performance:

o The level of performance achieved as specified in these regulations; and,

o The measures taken by the licensee to improve performance in the areas

covered by these Standards and licensee’s assessment of the targets to be

imposed for the ensuing year.

o Number of cases in which compensation was made and aggregate amount of

compensation.

The Quarterly reports shall be furnished to the Commission within 15 days of the

close of the quarter and the annual report shall be furnished to the Commission within

30 days of the close of the financial year.

The Commission shall, at such intervals, as it may deem fit, direct the Licensee or

otherwise arrange for the publication of the information furnished by licensees under

this regulation in such form and manner as the Commission consider it to be

appropriate.

Haryana:

The Standards of Performance specified shall be the minimum standard of service

with reference to quality, continuity and reliability of services that a licensee shall

achieve in discharge of his obligations as a licensee.

Standards of Performance specified in Schedule I relates to Guaranteed Standards of

Performance for which consumers against whom no arrear is pending on the date of

violation are eligible for compensation in the manner provided in the Schedule I in

case the Licensee fails to achieve the Standards of Performance.

In case of applications requiring supply under agriculture category (Agriculture Pump

sets) licensee’s obligation shall be limited to the number of connections that can be

covered within the target fixed by the State Government for release of agricultural

connections for a financial year. The target for an ensuing year should be fixed and

made public at least 2 months before the commencement of the year. The licensee

shall inform the applicants in writing within 15 days of receipt of applications, if the

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applicants’ case cannot be covered in the programme of release of Agriculture Pump

set connections fixed for the year.

.Schedule II relates to Overall Standards of Performance, which indicates the level of

performance the licensee shall seek to achieve in the discharge of his obligations as a

licensee.

An Annual Review Committee shall be formed by each Distribution

Licensee and its recommendation shall be submitted to the Commission for

approval. The Commission may modify, upgrade and cancel the requirements from time to

time.

Maharashtra:

The Distribution Licensees shall maintain and submit information on the matters covered

under clauses (a) and (b) of sub-section (1) of Section 59 of the Act to the Forum on a

monthly basis and put up such information on the internet website of the Distribution

Licensee, within a period of thirty (30) days from the end of the month: Provided also that the

Distribution Licensee shall submit information on the matters covered under clauses (a) and

(b) of sub-section (1) of Section 59 of the Act to the Commission on an annual basis, within a

period of thirty (30) days from the end of the financial year: Provided that the information

shall be with respect to the total number of cases of failure to meet each of the standards

specified in these Regulations: Provided further also that the Distribution Licensee shall

separately state the total number of cases where compensation has been paid by it without

dispute and the total number of cases where compensation has been paid in compliance with

an order or direction of the Forum or Ombudsman, along with the total amount of

compensation in each category. Provided further 14.2 The Distribution Licensee shall submit

the information to the Commission on the matters covered under clauses (a) and (b) of sub-

section (1) of Section 59 of the Act on quarterly basis, within a period of thirty (30) days

from the end of the quarter in the forms shown in Annexure I to Annexure VI. 14. 3

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Content of audit report

The audit report shall address the following specific matters (a) Adherence to procedures and

formats as per regulations; (b) Assessing staff engaged in call centers/complaint handling

centers/customer care centers for their understanding of complaint handling procedures,

quality parameters, and training adequacy for their task; (c) Method of data collection and

management procedures; and (d) Review of relevant records (as per appropriate sampling

procedures) for reliability and accuracy across quality parameters; 14.3.2 The Commission

may authorize the Commission staff or any independent agency(ies) to conduct annual

checks, in order to monitor the compliance of the standards by licensees and submit audit

report to the Commission.

The following procedure shall be adopted for engaging agency (ies):

(a) audit scope and the methodology for carrying out the audit to be set by the Commission;

(b) the Commission will identify and publish panel of approved agency (ies);

(c) Licensee shall nominate an agency from the notified panel of agencies; 21

(d) Licensee shall not engage an agency consecutively for more than two years. They shall

also not engage an agency which is currently their statutory auditor or internal auditor or has

been engaged as a consultant;

(e) audit shall be conducted under an agreement between the nominated agency and licensee;

and (f) remuneration of the audit agency will be paid by the licensee.

Auditing methodology

Grading of the audit report on performance standard submitted by the licensee shall be done

in two parts – reliability and accuracy of the data.

a) Reliability grading The grading system for reporting the reliability of the performance

standards shall be set as under:

Reliability Grade Assessment of Reliability Grade

A Based on proper records with

adequate procedures

B Data has significant procedural

deviations

C Unsatisfactory Data

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Only if the reliability is of the Grade A, further analysis will be carried out to measure claims

on achievement.

b) Accuracy grading If the data submitted has reliability of Grade A, then further analysis of

data will be carried out to assess accuracy of information provided.

c) Based on the accuracy grade assessment of the information provided on the achievement

of Overall Standards, certain percentage of compensation paid may be allowed in the

ARR by the Commission, set as under:

Accuracy Level Percentage of compensation paid

to be recovered through Annual

Revenue Requirement

+/-2% 100%

+/-5% 85%

+/-10% 70%

8.4. Handling of complaint:

Maharashtra:

The Distribution Licensee shall register every complaint made by a consumer (either verbally

or in writing) in a register / registers or in electronic format to be maintained for this purpose.

The complaint register shall be maintained category wise which will help in finalization of

compensation and reporting performance to the Commission. The licensee shall allot a

number to each complaint which shall be duly communicated to the consumer except in the

case of postal complaints received. However the number shall be communicated to the

complainant in case subsequent to the delivery of postal complaint he/she inquires regarding

the complaint number / status telephonically or in person. 8.11 Licensee shall devise its own

processes at complaint handling centers / call centre(s) / customer care centre(s) / service

centre(s) or any other customer interface channels to handle consumer complaints. The

processes should include the following:

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(a) registration of complaints by allotting a unique identification number to be called the

complaint number;

(b) Communication to the consumer of the complaint number, date / time of registration of

the complaint and expected complaint resolution time;

(c) Record details of each complaint (As per Annexure III);

(d) Intimate contact details of the next higher authority (including his name, telephone

number and address) to the consumer in case the consumer is not satisfied with the complaint

handling or when requested by him; and

(e) Update and record feedback of the consumer on the action taken along with the total time

taken for resolution of the complaint. 8.12 Licensee shall held consumer service day in each

office once in a month by pre declaration. The complaints received on consumer service day

should also be taken in the complaint register and resolve them as per Regulation.

Gujrat:

1. The licensee is required to maintain standards of performance for supply of electricity to

all consumers in the manner prescribed hereinafter. The limits prescribed in these standards

refer to the maximum time permissible for performance of different activities of consumer

services. It shall be the endeavour of the licensee to provide the best possible services well

within the time limits specified in these Regulations.

2. The licensee shall register every complaint made by a consumer, either verbally or in

writing, regarding failure/interruption of power supply, quality of power supply, meters/meter

boxes/metering system’s service line, payment of bills and other services relating to power

supply, in a register / registers or in electronic format to be maintained for this purpose. A

unique number shall be allotted to each complaint. This complaint number shall be conveyed

to the consumer except in the case of postal complaints received. However the consumer

may, subsequent to the delivery of postal complaint, inquire regarding the complaint number/

status telephonically or in person. The number shall be communicated to the complainant in

such a case. In case of major failure of supply due to tripping of EHV or failure of upstream

power systems, the reason needs to be communicated to the consumer in addition to the likely

restoration time. In such a scenario, such complaints shall be recorded separately under single

complaint number. The licensee shall ensure redressal of all complaints promptly.

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3. Complaints in respect of supply of electricity covering metering, billing and payment, shall

be made at specified offices of the licensee. Licensee shall convey information of the name of

office(s), address(s) and telephone numbers where the consumer can lodge complaints, with

the electricity bills and also display it at the sub-division offices or equivalent distribution

unit designated by whatever name. If the phone services for recording complaints, if

outsourced by the licensee, the phone numbers of such call centre shall be displayed in

electricity bills and sub-divisional offices. The licensee shall also endeavor to publicise these

contact details through The office where a complaint is registered shall dispose it of and if

any instruction/sanction is to be obtained from a higher authority, it shall be obtained by the

complaint registering office. The complainant is not required to approach such higher

authority. Similarly, in case an outsourced phone service is engaged, such centre itself shall

forward the complaints to the concerned officer. The licensee shall ensure proper compliance

by the outsourced service by arranging visits of its officers to such centers to streamline

responses.

Grievances regarding non-registration of complaints and failure to perform within the time

limits and/or to meet the performance targets, as specified in these Regulations, shall be made

to the concerned officer in-charge of the division or to equivalent distribution unit designated

by any other name. In case of unsatisfactory disposal of grievances/complaint should

be made to the officer in-charge of the circle or equivalent similar functionary by whatever

name designated.

In case a consumer is not satisfied with the disposal of complaint even after taking the issue

at the level of division head / circle head, he can approach the complaint redressal committee

as indicated in sub clause 4.7 below.

4.7 The licensee shall hold regular grievance redressal meetings with consumers. These

meetings shall be open to all consumers. The consumers can also register their complaints in

these meetings. These meetings shall be held in the office of the head of the sub-division or

equivalent distribution unit designated by whatever name on 10th of every month and in the

office of the head of the circle or equivalent similar functionary by whatever name designated

on 20th of the same month. If10th or 20th of a month falls on a Sunday or a public holiday or

a holiday in the State due to any other reason, the meeting shall be held on the next working

day. The schedule of the redressal committee meetings should be displayed at sub-

division/circle/section/zonal offices. Minutes of the subdivision/section level meeting and

action taken report should be available to the head of the circle/zone at the time of meeting to

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be held on 20th of the same month. The redressal committee shall as far as practicable

dispose of the matter within not more than three meetings

8.5 COMPENSATION:

Gujrat:

1. If a Licensee fails to meet the standards specified, the affected domestic consumer is

entitled to compensation from the Licensee as provided in the annexure

2. Considering the first year of implementation as a transition period, the Commission

permits moratorium on payment of compensation by licensees to consumers during such

period. The Commission will monitor the efforts of the licensees for improvement of their

system and services during this transition period. The moratorium period will end on

30.06.2005.

3. Consumer grievances with regard to non-implementation of standards of performance

according to these Regulations shall be redressed as provided in the Regulations for GERC

(Establishment of Forum for Redressal of Grievances of the Consumers) and GERC

(Establishment of Ombudsman). The compensation to the affected consumers shall be paid

by a licensee automatically following the decision by Redressal Forum/Ombudsman in the

next billing cycle.

4. In order to familiarise consumers of their rights under these Regulations ,the extracts of the

Regulations pertaining to consumer rights should be printed and widely publicized from time

to time through appropriate media.

Haryana:

1.If the Licensee fails to meet the Standards of Performance specified in Schedule I, the

licensee shall pay to the affected consumer against whom no arrear is pending on the date of

violation, the compensation as indicated against each of the Standards of Performance in

Schedule I.

2 The Licensee shall register every complaint of a consumer. The Licensee shall computerise

the registration of every complaint of a consumer through automatic answering machine or

any other such means intimating the complaint number to the consumer automatically.

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3 The Licensee shall maintain relevant records consumer-wise regarding the Standards of

performance in order to give a fair treatment to all consumers and avoid any dispute

regarding violation of standards

.

4. All payment of compensation shall be made by way of adjustment against existing, current

and/or future bills for supply of electricity.

Provided the compensation shall be paid in Cash/ Demand draft wherever the claimant ceases

to be the consumer of the utility.

Provided that all the compensation shall be made within 90 days from the date of violation of

a guaranteed standard of performance. If the Compensation is not adjustable in the existing,

current and/or future bills of the supply of electricity the same should be paid in cash /

demand draft to ensure that the compensation is paid within 90 days from the date of

violation of a guaranteed standard of performance.

Maharashtra:

1. The minimum compensation to be paid by the licensee to the affected person is specified in

Appendix A of these regulations. Provided, the actual compensation may be decided by the

Commission considering the following factors:

(a) Hardship caused to the consumer; and

(b) Average monthly bill of the consumer.

2. Where the Distribution Licensee finds that it has failed to meet the standards of

performance specified under these Regulations, the Distribution Licensee shall be liable to

pay to the affected person, such compensation as provided in Appendix A to these

Regulations. Provided that any person who is affected by the failure of the Distribution

Licensee to meet the standards of performance specified under these Regulations and who

seeks to claim compensation shall file his claim with such a Distribution Licensee within a

maximum period of sixty (60) days from the time such a person is affected by such failure of

the Distribution Licensee to meet the standards of performance.

Provided that the Distribution Licensee shall compensate the affected person (s) within a

maximum period of ninety (90) days from the date of his claim.

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3. In case the Distribution Licensee fails to pay the compensation or if the affected person is

aggrieved by non-redressal of his grievances, he may make a representation for the redressal

of his grievance to the concerned Consumer Grievance Redressal Forum in accordance with

the provisions of Maharashtra Electricity Regulatory Commission (consumer grievances

redressal Forum and Electricity Ombudsman) Regulation, 2006 and any amendment thereto

(as in force from time to time)

Provided that in case the claim for compensation is upheld by the Consumer Grievances

Redressal Forum the compensation determined by the Commission in Appendix A to these

regulations will be implemented by the Forum or in case of appeal filed against order of the

Forum before him by the Ombudsman and is to be paid by the concerned Distribution

Licensee. Provided further that such compensation shall be based on the classification of such

failure as determined by the Commission under the provisions of Section 57 of the Act and

the payment of such compensation shall be paid or adjusted in the consumer’s future bills

(issued subsequent to the award of compensation) within ninety (90) days of a direction

issued by the Forum or by the Ombudsman, as the case may be.

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9. EFFECTS OF STANDARD OF PERFORMANCE ON TARIFF:

The tariff is also depended on the standard of performance of different utilities because of

many reasons,

If the distribution network is not performing upto the mark, then there will be no continuity

of supply and hence the consumer will not get the supply. Though the utilities are providing

supply but it is not reaching to consumer. The utility is asking for the the payment and hence

the tariff is hiking.

The government is providing subsidy to agriculture sector for that they are collecting the

cross subsidy from the domestic sector. But the farmers are not getting that electricity due to

poor distribution system. To provide subsidy, tariff is increasing,

The distribution loses are increasing due to poor distribution infrastructure. The equipments

which are used to produce electricity must perform according to SOP, because if it does not

perform with that, the fuel is wasted. the fuel cost is increasing rapidly.

If the utility does not provide services to consumer, then there may be complaints from the

consumer such as

(A) Interruption in power supply.

(i) Loose connections from pole

(ii) Interruption due to line breakdown

(iii) Interruption due to failure of transformer

Page 30

(B) Quality of power supply

(i) Ordinary case, which requires no augmentation.

(ii) Where augmentation is required.

(C) Meters

(i) Stopped/Defective Meters.

(ii) Billing on average basis for more than two bills

(D) Overhead lines

(i) Loose Wires

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(ii) Inadequate ground clearance

(E) Bills

(i) For current bills where no additional information is required.

(ii) Where additional information relating to correctness of reading etc. is

required.

(F) Service connections (Domestic & Non Domestic)

(i) Where extension of mains is not required.

(ii) Where extension of mains is required.

(iii) Modification in connected load.

(iv) Name change/reconnection.

(G) Refund of amount due in regard to temporary connection.

(H) Others

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10. CONCLUSION:

The importance of regulatory practices cannot be underestimated. Assessment of regulatory

practices across countries has shown that independent regulation has promoted investment in

telecommunication services. Results of concession agreements in Latin America in electricity

and roads sector in India have also resulted in attracting fresh investment. However, in India

payment security issues have dominated and regulations have not brought about larger inflow

of private investments. The share of private investment in all segments of electricity supply

remains small. Recent spurt of investment in generation, particularly in Ultra Mega Power

Plants is because it has given greater payment security than was available before. However,

not much activity is being witnessed in distribution segment of electricity supply.

The electricity Act 2003 has become the law of the land. The SERCs have played a positive

role in the after reform period. Their functions especially related to tariff fixation has brought

a positive change in the power sector. SERCs have initiated more public participation &

transparencies in the proceeding. The increased no of objections filed by consumers, NGOs

& several associations proves the increased participation. SERCs have up loaded all their

proceedings, orders discussion paper on their respective websites which are open to

discussion to public.

If we want to get the clear picture of the aftermaths of restructuring & effects of regulatory

governance the overall improvement is seen in following areas in states under consideration;

1. Positive Trend towards reduction in distribution losses.

2. Increased & more focused investment

3. Capacity additions & system strengthening of the power systems

4. Localization & reduction in efficiencies.

5. Improved customer care.

6. Progress in metering, billing, & revenue collection.

7. Increased accountability in DISCOMs.

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8. The SERCs tariff setting approach is well established & understood by Utilities. So a well

understanding & coordination trend has established in tariff fixing. The SERCs are reviewing

the Utilities performance with the benchmarked one regularly.

The conclusions about operational & financial parameters are given as below.

In case of sale forecasting or demand estimation the historical trend method has proved to be

reasonably accurate and a well accepted method to estimate the number of consumers, the

connected load and the energy consumption where the past data is fairly accurate and the

trends are well established.

Almost all the SERCs have adopted merit order dispatch approach for power purchase.

Prior to reforms, there were minimum efforts to scientifically assess the T&D losses that

were often masked in unmetered (primarily agricultural) consumption. The approaches &

measures taken by SERCs are different. There is no uniform method for measuring & setting

targets for T&D losses.

In cost based regulation capital cost is the most important parameter. THE SERCs have

carefully studied the past assets capitalizations to approve CAPEX.

From a regulatory perspective, depreciation is considered as a small amount of the original

cost of the capital assets, built into the tariff computation every year with a view to providing

the utility a source of funding to repay instalments of debt capital. The refund of capital view

is mainly adopted by SERCs. Advance against depreciation (AAD) is allowed in certain

conditions like where the debt redemption obligation is not matching with the existing

depreciation allowed.

The SERCs differs on the ROCE or ROE approach The ROCE approach is consistent with

the performance based regulations. Normative COD will not work for all companies in India.

Approved interest on loans is directly related to the loans taken into the Capital Base

computations. The loans drawn for CAPEX and interest thereon are a pass-through in the

tariffs.

For the purpose of tariff fixation & identification of cross subsidy the CTS model proves to

be an important tool. The basic objective of the Commission to use the CTS with regard to

tariff design in the Tariff Orders was to build a road map to move towards cost-reflective

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tariffs. The subsidy given by state government limits SERC from adopting progressive Cost

to Serve model. Due to subsidy SERC cannot increase tariff for subsidized consumers like

Domestic & Agricultural. However regulatory Commissions like in AP & Karnataka have at

least decreased the tariff for HT & other subsidizing categories.

The Indian Power sector has gone through the institutional & structural changes, given the

existing arrangement from SEBS to unbundled DISCOMs. Even the wholesale level

competition has been introduced. Model 4, the retail competition is a logical end point to the

reforms, because Model 4 avoids the potential conflicts & inefficiencies of Model 3,

wholesale competition. If the goal is competition in production model 3 can be sufficient. We

have brought requires the structural & institutional changes at the wholesale level needed for

model 4. However the main hurdle in front of us is elimination of subsidy & cross subsidy.

Looking at the current scenario it will take more time than expected to eliminate the cross

subsidy & subsidy.

The State Government gives subsidy to fill the revenue gap for its state utilities. The main

reason for giving subsidy has political & economical background rather than the

differentiation expected in electricity Act 2003, National electricity policy & National tariff

Policy. The clauses & provisions itself in policy & act looks contradictory.

In Indian power sector, the expensive peak hours with the cheap off peak hours are sold at

one average price. Electricity prices for the consumers are always been bundled- as per

quantity used, but not by when the electricity is used. TOD tariff is applied to mainly HT

industrial & non industrial consumers.

An area of concern is that even after a decade of reform is that realistic valuation of losses is

still lagging. Particularly agriculture consumers, which are still unmetered in most of the

states, are a big cause of distribution losses. Indeed the improvement in feeder metering &

DTC metering is significant, the large portion of unmetered agricultural consumption still

makes actual losses unknown. Somehow the estimated unmetered consumption is masking

the distribution losses.

It has been observed that the basic systems do exist in the utilities. However they can be

sharpened and can be effectively used with advanced technologies.

Minor additions / modifications are necessary for monitoring and improving the system

Reliability.

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If we want to get the clear picture of the aftermaths of restructuring & effects of Standard of

performance, the overall improvement is seen in the tariff rate.

If the utility follows SOP led by the SERC, then the utilities save the compensation which is

to be given to consumer.

If the services provided by the utilities are provide in the efficient way, then it will be

beneficial to consumer. No complaints will be there from consumer side

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11. RECOMMENDATIONS:

International experience shows that power sector reforms have been successful in countries

with adequate generation and transmission capacity. This condition is not satisfied in a

number of countries in South Asia. In India too, barring a few states in eastern India and

small Himalayan states like Uttaranchal and Himachal Pradesh which have hydro-electric

sources of power other states suffer from insufficient generation and congestion in the

transmission systems.

PRIVATE INVESTMENT:

The essential conditions for encouraging private investment in a sector are that investors

should be confident that they would get adequate returns. This crucially depends in the

viability of the distribution sector. In Electricity Act 2003 emphasis is given to increasing

competition and enhancing private sector investment, yet power sector is not completely

conducive for private sector investment. Although some regulations e.g. Multi Year Tariff

and Open Access provide some certainty to investors, yet its proper implementation is very

crucial.

INDEPENDENT FUNCTIONING OF REGULATORY COMMISSIONS:

Regulators have been given the key role in reforming the sector. Electricity Act 2003 gives

them wide ranging powers. The functions and powers given to regulators in electricity sector

compare favourably with the best. However, the regulators face the challenge of unfavourable

initial conditions. These include the challenge of dealing with state owned utilities, which

have overwhelming presence in generation and monopoly in distribution and transmission.

In most states these vertically integrated utilities have been unbundled and converted into

corporations. But this has not brought about any change in their management style or

incentive system. They continue to function as administrative bodies that are not responsive

to economic incentives and —for them the concept of cost does not apply. Their concept of

rationality involves following procedures (particularly based on paper work) rather than

taking cost benefit based decisions―. They also do not consider themselves directly

responsible to the shareholders (i.e. tax payers) nor to the consumers but only to the State

Government. In fact in a number of states the Secretary Department of Power is also the

Chairperson of the Power Corporations. Thus, the role of the government as policy maker and

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that of the corporation as implementing agency is devolved in the same person. It is thus not a

surprise that the accounts in most cases have not been finalized nor were the tariff petitions

filed on time. Despite the change to corporate structure, the provisions of company law

relating to prudent accounting practices and publication of quarterly accounts and finalization

of balance sheets have been given a miss. The structural reforms as envisaged by the

Government of India and enforced by States do not lead to any substantial change either of

the organization or of the administrative nature of the SEB‗s.

EFFICIENT MANAGEMENT OF FUNDS:

The financial institutions that have increased fund flows for generation projects as well as

distribution reform schemes like APDRP and Rajiv Gandhi Grameen Vidyutikaran Yojna

have not insisted on funds releases being conditional or following the company law

provisions or principles of good governance. They are mostly satisfied by the State

Governments tendering a guarantee, despite the fact, that over the years, such guarantees

have not ensured timely payment.

TIMELINESS OF TARIFF ORDERS:

All SERCs should issue tariff orders in time so that tariff structure could be improved and

approved tariff could be implemented without delay.

LOAD FORECASTING & SALES ESTIMATION:

The sale/demand forecasting should be Time of Day (TOD) based so that peak hour demand,

off peak hour demand & the supply for the respective time can be managed in better ways.

Also the methodology adopted for forecasting should be a standard one, and should not vary

through the years.

CAPITAL EXPENDITURE OR INVESTMENT:

The capital work proposed by DISCOMs needs to be scrutinized by independent agencies or

consultancies so that the base line data will be corrected, the technical feasibility will be 78

evaluated correctly & the only useful investment will be done. Also in capital work execution

consultancy expertise needs to be utilized.

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TOD TARIFF:

The TOD tariff is based on conservation by price response. TOD tariff is applied to mainly

HT industrial & non industrial consumers. It should be given priority to extend MYT to LT

industrial, commercial & high consumption Residential consumers. However the hourly

metering should be cost effective. It should be implemented in the case of

The customer is large electricity user;

The customer‘s price responsiveness ( elasticity of demand) is high; or

The difference between the hourly prices (due to short term & ABT ) & the averaged

price is large.

Recommendations for the Impact of SOP:

The detail study of Standard of performance of distribution utilities is done through the

information available in the annexure. There are many ways in which we can improve the

standard of performance such as improving reliability indices, handling consumer complaints

as early as possible.

1, The most reliable and accurate data management is very important in calculating and

maintaining the reliability indices. For fast, accurate and reliable data management, a power

distribution software solution based on an integration of dedicated GIS and Network analysis

solution will be the right approach.

SCADA

Monitoring of the distribution system on a real time basis and introducing a certain measure

of automation into the distribution system is best achieved with a Supervisory Control and

Data Acquisition system (SCADA). Implementation of SCADA is already initiated in

selected circles in MSEDCL.

Network Information system

Integration of the network mapping and the network analysis software with SCADA will

substantially improve the operating efficiency and consequently customer satisfaction and

will repay its cost over a period of time.

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It would be ideal to model low voltage network emanating from each and every distribution

transformer. The difficulty is that the network data would be acquired in phases due to the

large number of network entities and the large number of low voltage consumers.

2. Gujrat utilities are one of the most efficient utilities in India. The utilities have also started

keeping the record of standard of performance. The data is recorded on the quarterly year

basis.

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12. REFERENCES:

TARIFF ORDERS:

1. Tariff Orders issued by CERC, GERC, MERC & HERC from the period 2007-08 to

2009-10

TARIFF REGULATIONS:

1. Tariff regulations issued by CERC, GERC, MERC & HERC.

WEBSITES:

1. www.cercind.gov.in

2. www.herc.gov.in

3. www.gercin.org

4. www.powermin.nic.in

5. www.merc.org

REPORTS:

1. TERI, ―Analysis & compilation of tariff orders‖, TERI report no 2006RP23 May 2007

final report

2. PFC, ―Report on the Performance of The State Power Utilities for the Years 2004-05

to 2006-07‖

3.Standard Of Performance of different state .

Documents

Analysis of Tariff orders of Distribution Utilities issued ... No 75...i SUMMER INTERNSHIP REPORT ON Analysis of Tariff orders of Distribution Utilities issued by respective SERCs