APERC Wheeling Calculation

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ANDHRA PRADESH ELECTRICITY REGULATORY COMMISSIONHyderabad

O.P. NO.510/2001

Date: 24th March, 2002

Present : Shri. G.P.Rao, ChairmanShri. D.Lakshmi Narayana, MemberShri. A.V.Subba Rao, Member

BetweenTransmission Corporation of Andhra Pradesh Limited (APTRANSCO)Eastern Power Distribution Company of Andhra Pradesh Limited (APEPDCL)Central Power Distribution Company of Andhra Pradesh Limited (APCPDCL)Northern Power Distribution Company of Andhra Pradesh Limited (APNPDCL)Southern Power Distribution Company of Andhra Pradesh Limited (APSPDCL) ……………ApplicantsAND

Suppliers of Electricity, the end users of electricity ( including captive use) availing PowerWheeling Service and others ……………Respondents

Sl No Names of the Objector/Participants

1 Andhra Pradesh Gas Power Corporation Limited(APGPCL)

2 The Andhra Pradesh Paper Mills Limited

3 Sriba Industries Limited

4 NATL Limited

5 Ferro Alloys Corporation Limited

6 MIDHANI

7 ITC Bhadrachalam Paper Boards Limited

8 Renewable Energy Developers Association

9 Cement Corporation of India Limited

10 Priyadarshini Cement Limited

11 RVK Energy Private Limited

12 Rain Calcining Limited

13 Rastriya Raithu Seva Samithi, Chittoor

14 M. Venugopala Rao

15 Peoples Monitoring Group on Electricity Regulation

16 APSEB Assistant Engineers Association

17 APSEB SC / ST Employees Welfare Association

18 APSEB Engineers Association

19 PRB Power Private Limited

20 Jindal Strips Limited

21 Andhra Pradesh Spinning Mills Association

22 The India Cements Limited

23 ESPAR Pak Limited

24 Small Hydro Power Developers Association



25 My Home Cement Industries Limited

26 Dhana Lakshmi Rice and Cotton Mills (KG Chowdary)

27 Precot Mills

28 Jyothi Bio Energy

29 Andhra Sugars Limited

30 Sree Rayalaseema Green Energy Limited

31 Weizmaan Limited

32 Ind-Bharat Engineers Limited

33 Gayathri Agro Industrial Power Limited

34 Jana Vignana Vedika, Khairatabad Branch

35 B. Rama Krishna Rao

36 Grindwell Norton Limited

37 South Central Railway

38 Penna Cement Industries Limited

39 Sudha Agro Oil & Chemical Industries Ltd.,

40 Vathsasa Power Projects Ltd

41 Gautami Solvent Oils Ltd

42 JOCIL Ltd

43 Sudalgunta Sugars Ltd

44 Bio-mass Developers Association

45 GMK Products Pvt Ltd

[Heard on 20th & 21st of December 2001]

*** The Andhra Pradesh Electricity Regulatory Commission (hereinafter called 'the

Commission') having received an application dated 8th October 2001 from the above applicants(as a follow up on their request for allowing Wheeling Charges in Cash @ Re.1/kWh contained intheir Filing of Proposed Tariffs (FPT) for 2001-2002, in respect of energy wheeled by them, ofelectricity generators/suppliers hereinafter called ‘project developers’, for delivery to the end users(including captive use), the Commission having invited objections from the public through pressnotification and having held public hearings on 20-12-2001 and 21-12-2001, having heardapplicants, the respondents and the public and having considered the documents available onrecord and all other matters relevant and incidental thereto, passed the following order:-

ORDER

CHAPTER – I

PLEADINGS AND PROCEEDINGS AT THE TARIFF HEARING 2001- 021.1. The Applicant No. 1 Transmission Corporation of Andhra Pradesh (hereinafter referred to as

`the APTRANSCO’) in its Annual Revenue Requirements/Expected Revenue from Charges

(hereinafter referred to as `ARR/ERC) and Tariff filings for 2001 -02 stated that its

activities as the Transmission & Bulk Supply Licencee consisted of two distinct components,

viz., the transmission business and the bulk supply business. APTRANSCO stated that itscustomers can be broadly classified into two categories namely (a) Distribution Licenceeswho buy energy in bulk from APTRANSCO for effecting retail supply to their consumers and(b) others namely the project developers who use the Transmission & Distribution systemfor conveyance of energy from the place of generation to the place of consumption, whichact in the electricity parlance is popularly known as Wheeling.



1.2 APTRANSCO in its filings for the year 2001-02 stated that the cost associated with servingthe above two categories, viz., Distribution Licencees (bulk purchasers) and other users ofthe Transmission & Distribution system for wheeling energy are different. The DistributionLicencees are the principal users of the Transmission & Distribution System on a perpetualbasis, whereas each of the other users of the Transmission & Distribution System (projectdevelopers), is an individual user of electricity who requires a specific but different service,since they require electricity at different time periods and in different quantities. TheTransmission & Distribution of energy involves costs related to erection and maintenance ofthe system. In addition there is a cost on account of the losses in the transmission anddistribution system in the process of wheeling the energy.

1.3 Regarding the methodology to be adopted for working out the costs associated with the twocomponents,viz., Transmission business and Bulk Supply business, APTRANSCO statedthat the marginal cost based pricing methods reflect the economic costs of servicing muchmore closely than embedded cost based pricing. APTRANSCO also stated that they hadmade attempts to develop marginal cost information for providing an appropriate basis forpricing the service. However, marginal cost studies require precise projections of futureloads and load profiles, additional generation capacity to be contracted and additionaltransmission capacity to be installed. In addition to the incremental costs incurred in theshort run for servicing the incremental load, there is need for adequate information on longterm load growth, load flows and resource plans. APTRANSCO stated that these were notavailable with it on account of the inadequate measurement and forecasting infrastructure.

1.4 APTRANSCO further stated that for developing the embedded cost to some degree ofaccuracy, a proper operational information (historical) of the Discoms is necessary. Sincethe erstwhile Andhra Pradesh State Electricity Board (hereinafter the “APSEB”) was avertically integrated entity, there was no need for determining the operational parameters ona district-wise (zone-wise) basis. APTRANSCO, after the formation of the Discoms, hasestablished interface metering between the Discoms and APTRANSCO. Presently all thesemeters are not enabled with Demand measuring and adequate data storing features whichare essential for obtaining a true picture of the load pattern and other parameters. Thecosts of transmission (wheeling) of energy are dependent on distance and voltage oftransmission, in addition to seasonality and time of the day. Since these costs will vary forevery customer, the cost data will vary for individual cases. Similarly the costs of bulksupply to the Discoms will also vary depending on the usage profile.

1.5 APTRANSCO also felt that for the present filing detailed data on usage profile was notavailable and hence, using a cost of service study at this juncture based on broadassumptions might be misleading.

1.6. APTRANSCO in its filing proposed to introduce a wheeling charge of Re.1/- per Kwh for theproject developers, doing away with the system of receiving energy in kind for the wheelingservice provided by it. To quote from the filings for the year 2001-02

“For the ensuing year, APTRANSCO proposes to do away with the system ofreceiving energy in kind in lieu of wheeling and proposes to introduce a wheelingcharge of Re. 1 per kwh. While this will provide a surplus over costs forAPTRANSCO, APTRANSCO believes that such a surplus is justified. APTRANSCO'sown Industrial consumers bear the burden of cross-subsidy provided to subsidisedcategories. By this Hon'ble Commission's own computations, HT Industrialconsumers of APTRANSCO pay more than twice the cost of service applicable forthem. This puts them in an inequitable position as compared to the industries whichhave access to wheeled energy either through group captives or through third party



have access to wheeled energy either through group captives or through third partysales who are currently paying even less than what it costs APTRANSCO to wheelthe energy for them. APTRANSCO believes that with the proposed charges of Re.1/-per kwh, the inequity will be partially addressed. After deduction of its own costs,APTRANSCO expects the proposed charges to provide additional revenuemobilisation which APTRANSCO will pass on as a reduction in the Bulk Supply Tariffsto be charged to the Discoms. However APTRANSCO proposes to exclude the non-conventional energy generators from the purview of the proposed tariffs for FY 2002as a measure of encouragement to these sources of energy. The existingarrangements are proposed to be continued for these generators".

1.7 In the comments / objections received in response to the notification of APTRANSCO's

proposed tariffs for Financial Year 2001-02 and later, in the public hearings held by the

Commission between 26th February 2001 and 8th March, 2001 on the Revenue Calculationsand Tariff Proposals given by APTRANSCO for the above year, references were made inregard to the proposed introduction of wheeling charge of Re.1/- per Kwh by someobjectors. The contentions of the objectors in regard to the proposed transmission /wheeling charges sought by APTRANSCO were:

a) APTRANSCO is bound by the wheeling agreements signed by itspredecessor Andhra Pradesh State Electricity Board (APSEB). APTRANSCO cannot unilaterally alter either the rate or the manner ofadjustment of wheeling charges in kind. These agreements are valid for aspecified period and APTRANSCO cannot resile from the terms of theagreements at this stage.

b) The wheeling charges etc. were settled by Government of AndhraPradesh (GoAP) which had issued necessary notifications. APTRANSCOhas no authority to ask for any deviation or change from what the GoAPhad decided and had set out in the notifications.

c) The Commission has also no power to deviate from the binding agreementreached between the project developers and the APSEB in regard to thewheeling charges.

d) In any event, APTRANSCO is claiming wheeling charges at Rupee 1/- perunit, which is totally unjustified, exhorbitant and illegal. APTRANSCO hasnot given any justification whatsoever for the wheeling charges to be leviedat Rupee 1/- per unit.

e) The Project Developers are not required to cross-subsidise or contributeany money towards cross subsidization of certain classes of consumers,which the HT consumers provide under the tariff orders for licenceesissued by the Commission.

1.8 As part of their presentation in the Public hearings, the Commission staff also submitted

that APTRANSCO had not given proper justification for the proposed tariff of Re.1/-

1.9 In response to the objections APTRANSCO stated that fixation of tariff including revisionthereof is a legislative function as held by the Hon'ble Supreme Court of India in severaldecisions and that the Commission is entitled to adjudicate on the Tariff for Wheeling withoutbeing bound by any previous notification issued by the Government of Andhra Pradesh(GoAP) or otherwise any agreement signed between APSEB/APTRANSCO . APTRANSCOalso submitted that the principle of promissory estoppel would have no application when thestatute viz the Andhra Pradesh Electricity Reforms Act 1998 (hereinafter `the Reform Act’)has specifically empowered the Commission to fix tariff. APTRANSCO stated that only 3%of the end users to whom the energy is wheeled (who are HT Consumers) were getting 34%of energy by Wheeling without contributing to any cross subsidy, violating the principlesenshrined in Article 14 of the constitution. APTRANSCO pointed out that the Transmission



enshrined in Article 14 of the constitution. APTRANSCO pointed out that the Transmission& Distribution network was laid to transmit 42000 MU on an average to about 13 millionconsumers. The few generating units and end users who get the energy wheeled cannotclaim the use of the Transmission & Distribution system to their advantage at the cost of allother consumers in the state who are supplied electricity by the Distribution Licencees.

CHAPTER IITHE COMMISSION'S VIEW AS EXPRESSED IN ITS TARIFF ORDER OF 24th MARCH, 2001.

2.1 While deciding the ARR/ERC of the applicants for the year 2001-02 the Commission

decided to consider the issues relating to the proposed tariff for wheeling in a separate

proceeding as stated in para 143 of the Commission's Tariff Order dated 24th March 2001as under:

“The issues relating to setting appropriate transmission/distribution wheeling chargesare complex in nature and require proper consideration. These include determinationof losses in different parts of the system, viz., transmission losses (upto step down to33 kV) and distribution losses (33 kV and below) forming technical component andthe other various losses in metering, meter reading, billing etc., including theft formingthe non-technical component of the total losses. The Commission will consider theissues of appropriate transmission/distribution wheeling charges in a separateproceeding. At this stage, the Commission will continue the existing arrangement ona provisional basis without prejudice to the Commission's rights to consider theissues relating to appropriate transmission/distribution wheeling charges at a laterstage. The Commission is not expressing any opinion on the rival contentions of theobjectors and APTRANSCO/ Distribution Companies at this stage”.

CHAPTER – IIIAPPLICATIONS MADE BY THE APPLICANTS IN THE PRESENT PROCEEDINGS

3.1 APTRANSCO made a filing on 8th Oct,2001 on its own behalf as well as the four Power

Distribution Companies of Andhra Pradesh (viz APCPDCL, APNPDCL, APEPDCL and

APSPDCL) (hereinafter collectively called `DISCOMS’) by way of a joint application for a

decision on charges for wheeling of energy. The Applicants have stated that the present

application has been filed to seek adjudication upon the outstanding issue of revision of

wheeling charges and with a proposal to change over from the present practice of

collecting wheeling charges in kind and to establish wheeling charge of Re.1/- per kWh of

wheeled energy.

3.2 While in the Filing of Proposed Tariffs ( FPT) made earlier for the year 2001-02 there was

a proposal to exclude the Non Conventional energy sources, there is no propoasl in this

application filed on 8th October 2001 to exclude such Nonconventional energy sources

from the proposed revision of wheeling charges.

3.3 APTRANSCO presented the following calculations in support of the rate of Re.1/- per kWh

proposed by it for the year 2001-02.

(All figures in Rs. Crs)

S.No Particulars DISCOMS TRANSCO Total

1 Wages and Salaries 407.70 32.79 440.49

2 Administration and General Expenses 66.56 1.36 67.92

3 Repairs and Maintenance 146.59 29.79 176.38



4 Rent, rates and taxes 2.35 2.04 4.39

5 Approved Loan and Interest 244.91 197.98 442.89

6 Interest on consumer security deposit 26.81 - 26.81

7 Legal charges 0.33 0.50 0.83

8 Auditors Fees 0.08 0.02 0.10

9 Depreciation 240.63 100.11 340.74

10 Other Expenses 29.89 4.83 34.72

11 Contribution to Employees fund 51.65 5.84 57.49

12 Special appropriation permitted by the

Commission

0.00 90.29 90.29

13 Contribution to contingency Reserve 9.48 6.58 16.06

14 Total 1226.98 472.13 1699.11

15 Reasonable Return 34.40 167.12 201.52

16 Total network value addition 1261.38 639.25 1900.63

The breakup of Re.1 per kWh proposed by the Applicants for wheeling charges is as follows:

S.No ParticularsAmount

(Rs. Crs.)

Rate

(Ps./kWh)

1. Network Establishment and Operation

Cost

1699.11 41.63

2. Cost of Losses in the System 1250.29 30.63

3. Reasonable Return 201.52 4.94

4. Transmission & Wheeling Charges

(External)

144.56 3.54

5 Surplus recovery proposed from

wheeling

19.26

Total 100

The details of the calculations made by the Applicants are as follows:

Item -1: Network Establishment and Operation CostA. Total Transmission & Distribution Expenses for APTRANSCO &

DISCOMS = Rs. 1699.11 crs

B. Total Power Purchases by APTRANSCO = 40816 MU

C. T & D Expenses per unit (A/B) = 41.63 Ps. Item-2: Cost of Losses in the System

D. Transmission loss upto 33 KV breaker = 8.5%E. Actual Losses upto 33 KV breaker (40816*0.085) = 3469.36 MUF. Transmission & Distribution losses in 33 KV and 11 KV

network. = 11% =(40816 -3469.36)*0.11 = 4108.13 MU

G. Average cost of power purchase = Rs.1.65 per unit

H. Total Cost of T&D losses upto 11KV level

=(3469.36+4108.13)*1.65



=Rs. 1250.29 Crs.

I. Cost per unit (H/B) = 30.63 Ps.

Item - 3: Reasonable Return:

J. Amount of Reasonable Return = Rs.201.52 Crs.

K. Cost per unit (J/B) = 4.94 Ps.

Item - 4: Transmission and Wheeling charges (External):

L. Wheeling charges paid to PGCIL for transmission = Rs.144.56 Crs of CGS power as perAPERC Tariff Order

M. Cost per unit (L/B) = 3.54 Ps. Item -5: Surplus recovery proposed from wheeling = 19.26 Ps TOTAL WHEELING CHARGES = (41.63 + 30.63 + 4.94 + 3.54 + 19.26) = 100 Ps.

3.4 The Applicants also proposed that the wheeling charges (calculated at Re.1/- per kWh on the

power wheeled as proposed by them) will be shared between APTRANSCO and DISCOMS in theratio of 25:75 for all wheeling at 33 KV and 11 KV while for the wheeling at 132 KV and above, therevenue would accrue fully (100%) to APTRANSCO for the reasons stated by APTRANSCO asunder:

· For voltages at 132 kV and above, the entire wheeling charges will be collected

by APTRANSCO as the Transmission network at 132 kV and above voltagespertains to APTRANSCO and the DISCOM networks are not involved.

· The Wheeling charges for voltage levels of 33 kV & 11 kV are proposed to be

shared between APTRANSCO and DISCOMs in the ratio 1: 3 keeping in view theproportional volume of transmission & distribution networks involved.;

· A share of 25% is considered for APTRANSCO in view of the fact that in most of

the cases, the scheduled consumers are not on the same 33 kV or 11 kV feederon which the developer is pumping energy. In such circumstances, the usage ofAPTRANSCO transmission network is inevitable and hence a portion of thewheeling charges (25%) is considered for APTRANSCO”.

3.5 APTRANSCO has given the following reasons to justify the inclusion of 19.26 paise towards "

surplus recovery" in its details for the calculation of Re.1/- towards the wheeling charges proposedby it.

(a) The costs have been computed on " embedded cost" method of pricing and not on "long

run marginal costs" (LRMC) and that embedded costs are generally less than LRMC. APTRANSCO have stated lack of ancillarynecessary data / information from its records asthe reasons for not working out LRMC and expressed their commitment to improvinginformation availability which would allow determination of a reasonable estimate of LRMCin future.

(b) Cost to Serve wheeled consumers is more than the cost to serve the Distribution

Companies as the load curves of the DISCOMs are flatter than those of the individualwheeled users.



(c) There are other ancillary services provided to wheeling consumers by APTRANSCO as wellas DISCOMs which are difficult to cost but have significant costs associated. For example,the following:

· Reactive power compensation

· Facility of banking energy

· Emergency power

· Continuous network access

(d) The provisions of cross-subsidy in the tariff of similarly placed industrial consumers whoare meeting their power requirement from the DISCOMs.

CHAPTER IVPROCEEDINGS HELD BY THE COMMISSION

4.1 APTRANSCO was directed by the Commission to notify the filing in two newspapers (one English &

the other Telugu) inviting objections from the public for the proposal. Objectors were also asked toindicate whether they would like to participate personally in the public hearings to be held later. Acopy of the advertisement No. RO75/2001 which appeared in the Press on 26-10-2001 is atAnnexure –‘A’. In response to this notification, 40 Objectors filed their objections. List of the Objectorsis at Annexure – ‘B’. M/s. Sudha Agro Oil & Chemical Industries Ltd., Samalkot submitted theirObjections in their letter No. DVS/APERC/2001:02 dated 17-12-2001 and requested for condonationof delay. A total of 38 Objectors expressed the desire to be heard in person [List at Annexure ‘C’]. APTRANSCO furnished its written responses on the objections/suggestions to the Commission andthe Objectors in its letter No. CE/Comml/ADE-1/Wh.Charges/D.No.397/01 dated 15-12-2001.

4.2 Public hearings were held at Ravindra Bharati, Hyderabad on 20th & 21st December 2001. ThePublic hearing commenced on 20-12-2001 with a presentation to the Commission by the CommissionStaff. There were presentations by Sri. T.V.S.N. Prasad, Managing Director, CPDCL on behalf of theDISCOMs, Sri. P.M.K. Gandhi, Director (Comml). and Sri. Hemant Sahai, Advocate on behalf ofAPTRANSCO. The Objectors presented their objections at the hearing personally or through counsel

on 20th & 21st December 2001. Fifteen written representations were received during the publichearings. [Annexure D] This was followed by Preliminary response by Sri T.V.S.N. Prasad, ManagingDirector, CPDCL on behalf of the DISCOMs, Sri. P.M.K. Gandhi, Director (Comml), APTRANSCO &Sri. Hemant Sahai on behalf of APTRANSCO to the Commercial & Legal objections raised during thehearings. on 21-12-2001. APTRANSCO followed this up with a letter No. CE/Comml/ADE-1/Wh.Charges/D.No.406/2001 dated 31-12-2001 containing its responses on new objections raisedduring the hearing.

CHAPTER V

SUMMARY OF PUBLIC OBJECTIONS AND APPLICANTS’ RESPONSE TO PUBLIC OBJECTIONS

Legal Issues 5.1 The following objections were raised by the objectors using the wheeling services, as

preliminary legal issues.

A. Maintainability of Joint Applications



APTRANSCO and four DISCOMS are separate legal entities, each holding a distinctlicence issued by the Commission. The joint application is not maintainable. Thecommon application made by APTRANSCO and DISCOMS for enhancement ofWheeling Charges to Re 1/kWH is contrary to the provisions of law, the conditions oflicence and order of the Commission. There is continuing malaise of undueinterference by APTRANSCO in the operation and management of DISCOMs. Hence, each licencee should file separate application with APERC for fixation of wheelingcharges in their respective portion of the network. The objections also stated that theaspect related to DISCOMS should not be clubbed with the transmission andwheeling charges, even on revenue shared basis.

The APTRANSCO denied that it was interfering in the Distribution & Retail Supplyactivities of DISCOMs. Since, the transmission network of APTRANSCO andDISCOMs are interconnected from 220 KV to 11 KV level, the utilities filed Application jointly to determine the charges. For voltages at 132KV and above, theentire wheeling charges will be collected by APTRANSCO as the Transmissionnetwork at 132 KV and above voltages pertains to APTRANSCO and the DISCOMnetworks are not involved. The Wheeling charges for voltage levels below 132 KVi.e., 33 kV & 11 kV are proposed to be shared between APTRANSCO and DISCOMsin the ratio 1:3 keeping in view the proportion of Transmission & Distribution networkinvolved.

B. Application – New Application or Continuation ? :

The objectors stated that the application filed cannot be treated as in continuation ofearlier ARR/FPT 2001-02 but should be treated as a fresh application. The objectorsfelt that the application amounted to seeking review of the earlier order of 24- 3-2001. The objectors also contended that the Commission had rejected the earlierapplication.

The applicants replied that the application is the continuation of the earlier one withadditional facts and figures to justify the proposed wheeling charge of Re. 1/kwh forthe Financial Year 2001-02.

C. Prospective or Retrospective

The objectors stated that the applicability of proposed wheeling charge should be on

prospective and not retrospective basis. In this regard the objectors relied on

Section 26 (6) of the Reform Act which provides that the Tariff will become effective

only after seven days of the publication in the newspaper. It was also pointed out

that it was an established rule that all laws/orders having financial implications

should have prospective and not retrospective effect.

The Applicants stated that the Power to determine tariffs was vested with the

Commission and that the Licencee will abide by the Commission‘s decision

D. Authority of the Commission to revise the wheeling charges or the nature

of collection

Some of the Objectors contended that the Commission has no authority for setting

the tariff (Wheeling charges). The existing Memoranda of Understanding (MOUs)

between APTRANSCO (erstwhile APSEB) and the industries using wheeling services

(providing for wheeling charges in kind) were entered into prior to the Reform Act

came into force. Hence, the proposal of APTRANSCO & DISCOMs to change the

rates from kind to cash (100 paise/unit) is not maintainable. The MOUs are binding

on APTRANSCO as per the doctrine of promissory estoppel.



on APTRANSCO as per the doctrine of promissory estoppel.

In reply to the above issue APTRANSCO submitted that fixation of Transmission/Wheeling Tariff including revision thereof is a legislative function and the Commissionis entitled to adjudicate on the Transmission/Wheeling Tariff without being bound byany previous notification issued by the Government or wheeling or other agreementssigned between APSEB/APTRANSCO and the project developers. The principle ofpromissory estoppel would have no application when the statute, viz., the Reform Acthas specifically empowered the Commission to fix tariff. Any contract or MOUbetween the parties concerned is subject to a review by the Regulatory Authority inperformance of it's statutory obligations.

E. Objections from Non-Conventional Energy Developers

Objectors belonging to the Non-conventional Energy sources claimed that they tookup their generation ventures under the Government of India Schemes and theincentives provided therein which should not be disturbed till the end of the incentivescheme in 2004. They also pointed out that the Power PurchaseAgreements (PPAs) with the APSEB/ APTRANSCO were in fact drafted by the licencee and that it wasunfair to repeatedly alter them. Some of them also referred to the proposal ofAPTRANSCO in its original ARR/ FPT not to seek a change in the rate of WheelingCharges in the case of Non-conventional Energy Sources, which does not find aplace in the Application dated 08-10-2001. They also contended that WheelingCharge is not a tariff related issue and hence the Agreement cannot be annulled byregulatory decisions. They also felt that the application of uniform rate of wheelingcharges among unequals affects BIOMASS power generating units. Some of themmentioned that cases were pending in the Hon’ble High Court of AP – (on third partysales) --for disposal and that final orders were awaited and that a stay was in placeand that the Wheeling Agreements already in place will continue to be in force till thefinal orders are issued in the Hon’ble High Court.

In response the Applicant contended that the prayer of the Objectors was forcontinuance of the incentives and that the Commission was entitled to adjudicate onthe tariff without being bound by any previous notifications issued by Government ofIndia. The Applicant maintained that the Commission was entitled to adjudicate onthe wheeling charge. The Applicant also stated that the case pending in the Hon’bleHigh Court was not related to Wheeling Charges and hence the Commission couldrevise Wheeling charges. The Applicants also stated that the Wheeling chargesshould be made applicable even to Non Conventional Energy Developers.

F.. Miscellaneous :

One of the persons appearing in response to the public notice relied on theCommission’s Order No. 73/2000-01 in the case of Astha Power Corporation in O.P.

No. 348 of 2000 passed on 4th July, 2000 in support of the plea that the Commissionhad power to regulate the tariffs for supply of electricity by persons other thanlicencees also. Reference was also made to the observation of the Commission in its

order No. 285/2001 Dt. 4th May 2001 on Mini Power Plants in O.P. No. 70-B/2001that the Wheeling Agreements earlier entered into were not binding on theCommission.



Contentions on issues on merits:

General

5.2 The project developers availing wheeling services objected that the rationale and reasoningset out by the applicants for proposed wheeling charge of Re. 1/- per kwh was illogical,irrational, unjustified and illegal. They also offered the following comments on the proposedrate.

(a) The wheeling charges proposed by the Applicant is exhorbitant, arbitrary and withoutany valid justification.

(b) The wheeled energy does not flow from place of generation to place of utilization. It isonly transmitted by displacement. Hence, the existing wheeling charges in kind is morethan enough compensation for loss and use of network charges

(c ) The inefficiency of APTRANSCO and DISCOMS can not be passed on to industrieswheeling power in the form of hike in existing wheeling charges.

(d) Uniform rate of 100 paise/unit irrespective of voltage level is not justifiable. SouthCentral Railway contended that the Power Grid Corporation of India Limited’s (PGCIL)Wheeling Charge for Northern Railway was 11.50 ps/kwh and that the rate for wheelingat 132 kV should be much less than that for wheeling at 33 kV and 11 kV.

(e) The pooling of costs was not correct as the entire system was not being used by all theusers alike.

(f) There is no valid justification for the surplus recovery component viz. 19.26 P/U.

(g) Payment in kind takes care of inflation and was covered in the Agreements.

(h) There is no additional cost involved in wheeling the power from the developer to the endusers as the end users are already consumers of licencees and as the network isalready existing.

(i) Only a small portion of the network establishment and operation expenses are relatable

to the transmission/wheeling function. Only a rateable proportion of the expenditure in

such part of the network are relevant for the purposes of determining a wheeling charge

at 11KV and higher voltage and should be taken.

(j) ITC Bhadrachalam contended that the EHV Line connecting them to the Grid was laid

way back in 1988 and all development charges have been paid by them and that the

line does not need any maintenance. Hence they need not pay Network charges.

5.3 In reply to the above the applicants stated that

(a) the proposed wheeling charges of Re.1/ kwh is arrived based on the figures

approved by the Commission in the tariff order dated. 24. 03.2001. Using those

figures and considering the following facts, the applicants calculated the embedded

cost of wheeling services.

(b) The existing wheeling charges in kind result in inadequate compensation for the costsincurred and services provided by APTRANSCO and DISCOMs in wheeling of theenergy through Transmission & Distribution network;

(c) The project developers stand to make abnormal profits on account of the presentarrangements due to the large differences between the costs incurred by thesuppliers of electricity and the rates paid by the beneficiary industries; and



(d) the Discoms are compelled to provide cross-subsidies to a large body of consumerswho do not have the capacity to pay cost reflective tariffs.

(e) Comparison with wheeling charges of PGCIL was not correct as the StateTransmission & Distribution system was much more extensive, wider and complexcompared to PGCIL’s 400 kV / 220 kV system supplying a few consumers.

(f) The Transmission & Distribution lines are not laid for wheeling purpose alone butprincipally for carrying out the distribution and supply of electricity to the public atlarge serviced by the Licencee. In response to ITC plea, APTRANSCO clarified thatthe Network charges were for the entire network and for the total units handled. Thecontention that the Development Charges paid are more than compensation for theestablishment and operation cost was erroneous.

5.4 Organisations like APSEB A.Es Association, APSEB SC/ST Employees WelfareAssociation, APSEB Engineers Association, Jana Vignana Vedika, Peoples MonitoringGroup on Electricity Regulation etc., generally supported the applicant. The People’sMonitoring Group suggested charging for Reactive power wheeling also. APSEB AE’sAssociation and APSEB SC/ST Employees Welfare Association felt the Wheeling Chargesmay be fixed at 159.2 ps/kWH taking into account 59.2 ps/kWH for other auxiliary servicesprovided by the licencees.

5.5 APSEB Engineer’s Association expressed the view that the special service costs could betaken as 10% of the average power purchase cost of APTRANSCO ie., 16.50 ps. Theystressed on equal treatment of HT Consumers of Licencee or of the Developers .Theyoffered the following comments on the proposed hike in wheeling charges.

(i) The rate proposed is too low to cover Transmission & Distribution losses and tocompensate for use of the Transmission & Distribution System

(ii) By selling at not less than applicable HT tariff, the private developers make higherprofit.

5.6 In contrast to the objection of private power developers that the proposed wheeling charge ofRe.1/kWh is very much on the higher side, some public bodies like Jana Vignana Vedikasuggest alternative calculation of wheeling charge to cover various components of serviceoffered by the Applicants. Among the alternative calculations based largely on the cross-subsidy element in the HT tariff suggested by these public bodies, the minimum wheelingcharge was 155 paise per unit.

5.7 The Ferro Alloy Units represented that they were already paying PGCIL for external charges

Objections/Comments on Transmission & Distribution Losses to betaken into account:

5.8 The project developers and end users offered the following comments on the Transmission &Distribution loss adopted for the calculation of Wheeling Charges.

(i) The wheeling charges are claimed based on the transmission loss figure of 8.5%proposed by the APTRANSCO . Losses at EHT of 8.5% is very high and notacceptable.



(ii) It is not correct to take into account the loss of 11% for 33KV and 11KV networks.

(iii) Distribution losses cannot be loaded onto wheeling charges for private developersusing only the transmission system.

(iv) Losses occurring out-side AP Grid i.e. in PGCIL lines have no relevance towheeling charges.

(v) The licencees cannot take long time to determine the actual Transmission &Distribution losses.

(vi) The estimated Transmission & Distribution losses for 2000-01 was taken at35.4% comprising 4.5% transmission losses, 17.9% technical distribution lossesand 13% non-technical distribution losses. The overall Transmission &Distribution losses for 2001-02 is projected at 32.3% which was adopted by theCommission for the purpose of determination of tariff. Now, the applicant claimstransmission loss at 8.5% and losses at 33KV and 11KV network are taken at11%. It is therefore unbelievable that the distribution loss in the entire low voltagenetwork is a mere 12.8%. If the non-technical loss in LT would be 9.9%, thebalance 2.9% is technical loss in the entire LT distribution system. The calculationadvanced by the applicant is therefore absurd.

5.9 Some objectors representing general public have expressed the view that Transmission &Distribution losses are even higher than the highest percentage of compensation existing forpayment in kind at the rate of 25%.

5.10 In reply to the above, the applicants stated that the transmission loss of 8.5% is based onactual meter readings. The loss figure of 11% for 33KV and 11KV network are based onlosses considered by the Commission in Tariff Order dated. 24-03-2001. The contention ofthe Objectors that the losses external to AP.Grid has no relevance is not valid sinceAPTRANSCO is purchasing power from Central Generating Units and other states throughtransmission network external to AP. Grid.

Objections/ Comments on Surplus recovery & Cross-subsidy :

5.11 The project developers presently availing wheeling services made the followingsubmissions on charging cross-subsidy as part of wheeling charges.

(a) Any additional charges for cross subsidy are not acceptable as there is no justificationfor charging this on industries wheeling energy.

(b) Cross-subsidy or related surcharge should be applied to those drawing power atlower voltage.

(c) The new Electricity Bill, 2001 does not provide for charging Cross Subsidy fromCaptive Power Units or end users of electricity produced in these Units .

(d) State Government should provide subsidy for electricity consumers having no payingcapacity.

Some representatives of general public vehemently supported that the burden of crosssubsidy should be borne by those who use the Network irrespective of voltage level.

5.12 In reply to the above contention of objectors, the applicants stated that the Discoms arecompelled to provide cross-subsidies to a large body of consumers who do not have the



compelled to provide cross-subsidies to a large body of consumers who do not have thecapacity to pay cost reflective tariffs. The burden of cross-subsidy should be shared by allthose who use the network.

CHAPTER – VI

THE STAFF PRESENTATION AT THE PUBLIC HEARINGS 6.1 The staff of the Commission, in their presentation dealt generally with the conceptual framework

for the formulation of a wheeling tariff in the context of the transition towards commercialisation ofthe transmission business. They referred in brief to the concept of Open Access Vs Limitedaccess, the methodologies for calculating the charges and limitations on their applicability due toinherent data constraints. It was also clarified that the position presently prevalent in the state isLimited Access where according to the licence granted, the Licencee can wheel electricity as perthe terms of the Licence granted to him by the Commission or otherwise only with the approval of the Commission.

6.2 The Staff stated that typically the charges for the wheeling service comprise of:

· connection charges (to pay for the use of the assets, usually by way of a fixed charge

sometimes differentiated for voltage levels),

· use-of-system charges (to reflect network characteristics like congestion, time of day

etc),

· ancillary service charges (to recover costs of ancillary services such as system stability,

reactive power compensation, reserve power etc)

· variable charges (representing largely losses incidental to wheeling)

6.3 The different methods in vogue of charging for wheeling of electricity such as the Postage Stampmethod, the Megawatt-Mile Method and the Nodal Pricing Method were referred to by the Staff . TheStaff drew attention to clause 20 in part -IV of the Licence of APTRANSCO in regard to the basis fordetermining wheeling charges.

6.4 On the question of Commission's jurisdiction to determine wheeling charges in respect of existingbilateral agreements for wheeling services between power producers and the erstwhile APSEB orthe successor APTRANSCO, the Staff stated that wheeling charges, being in the nature of tariff, theCommission should be considered to have full powers to revise them under section 26 of the APElectricity Reform Act and that the provisions in the existing agreements regarding charges forwheeling do not constrain the Commission from revising the wheeling tariff in view of thesuperceding legislation.

6.5 . The Staff further stated that the calculation of the wheeling charge should duly take into accountthe principle that the entire network as it exists with all its features such as stability, spinning reservesas well as losses is made available for the service of wheeling and that wheeling charges in theprevailing context of "Limited Access" should reflect primarily use-of-network services provided towheeling customers and loss in the Network.

6.6 The staff stated that the losses occurring in the system being an inseparable component of any

wheeling service, such losses are to be borne without discrimination by all end users, theconsumers of the Licencee as well as suppliers/end-users of the wheeled electricity. The cost canbe recovered either in cash by its inclusion in the wheeling charge or in kind by way of deliveringenergy net of losses to the recipient consumers. The Staff stated that in terms of Clause 20 of theLicence which specified ---“to deliver such electricity, adjusted for losses of electricity to adesignated exit point “----, losses will have to be paid for in kind which means, on wheeling, theenergy to be delivered at the designated exit point shall be net of losses.



energy to be delivered at the designated exit point shall be net of losses. 6.7 Given data constraints as exist at present, the Staff preferred the postage stamp method of

charging as a viable option pending detailed studies. A single part tariff (per Kwh) based on totalenergy flows (including wheeled energy) in the network is feasible. Over time and withimprovement in data availability, the charge would have to be refined to provide for the costsinherent in the mismatch between the time of generation (i.e. input into the system); and time ofconsumption of energy (i.e. offtake from the grid) by the end users of the wheeling service givingrise to balancing costs for the service provider. It was suggested by the Staff that system stabilitycharge & unscheduled interchange (UI) charge could be introduced once the ABT (AvailabilityBased Tariff of the Central Units) regime comes into vogue.

6.8 Adverting to the calculations presented by APTRANSCO in support of the wheeling charges of

Re.1/- per Kwh proposed, the staff stated that the denominator employed to calculate the rate perKwh should include wheeled energy also. The APTRANSCO's figure of 40,816 MU did not includewheeled energy. Further, the rate of Rs.1.65 per Kwh employed for calculating the cost of lossesincluded the external wheeling and transmission costs incurred and that its inclusion again in thecomputation (as done by APTRANSCO) resulted in double counting. Hence, the staff felt that theexternal Transmission & Wheeling Charges should be excluded. In the Network costs reckoned inthe computation for Re.1/- (which, APTRANSCO claims, is as per the Commission's Tariff Order

of 24th March, 2001), credit had not been taken by APTRANSCO for non-tariff income inabatement of expenses as done in the Tariff Order to arrive at the Revenue Requirement.

6.9 The Staff stated that the figure of 19.26 ps. / unit (surplus recovery) was not justified as no

quantification was done for services like reactive power compensation. The Staff also felt thatsince suppliers of electricity were consumers of Licencee only to the extent of network usage,they were not liable for a charge to account for Cross Subsidy. They also felt Cross subsidyshould arise only at the retail consumer level.

6.10. Regarding the arrangement proposed for sharing of revenue from wheeling services between

APTRANSCO and DISCOMs, the staff expressed reservations about the ratio ( of 25 : 75)proposed as, according to the Staff, it was not supported by any data as well as the legalimplications in view of APTRANSCO and the DISCOMs being distinct legal entities.

6.11. On the issue whether the consumers of wheeled energy should be the "consumers" of

APTRANSCO or DISCOMS, the Staff stated that there is need to examine the matter from a legalperspective.

6.12 In conclusion, the staff stated that the wheeling charges would have to be notified by the

Commission every year as part of the Tariff Notification and that the revised Wheeling Chargesshould come into force from the Tariff Year 2002-03 as the revenue requirement of APTRANSCOand the four DISCOMs for 2001-02 has already been met by the Commission. Further, if as amatter of policy, the GoAP desired that any class or category of energy wheelers were to becharged a lower tariff for wheeling, the difference would have to be met by GoAP as subsidy.

Chapter VII

RESPONSE OF APTRANSCO TO STAFF PRESENTATION

7.1 In it's response, APTRANSCO agreed with the Staff’s observation that Wheelingcustomers were consumers of DISCOMs and stated that the characteristics of wheelingcustomers were similar to industrial consumers. The wheeled customers/end usersshould carry a similar burden of cross subsidy as applicable to other HT consumers.They contended that had APTRANSCO included a comparable cross subsidy it would



They contended that had APTRANSCO included a comparable cross subsidy it wouldhave amounted to 86 Ps./Unit. But comparable cross subsidy would have resulted in awheeling charge significantly higher than that originally requested in the Filing ofPrposed Tariffs(FPT). They pointed out that this could be well understood from thefollowing illustrative calculation.

A Cost of Service (Ps /unit) 80.74

B X APTRANSCO Units (MUs) 40,816

C Cost of service (AXB) (Rs. Crores) 3,295.48

Less

D Non Tariff Income (Rs. Crores) 333.43

E PGCIL Charges (Rs. Crores) 144.56

F Net cost of service to be recovered (C-D-E) 2817.49

G Wheeled Units (Mus) 2200

H Total units (B+G) (MUs) 43,016

I Cost of service/unit (F/H) (Ps/Unit) 65.50

J HT 1 Price (K+L) (Ps/Unit) 444

K Subsidy component (Ps/Unit) 229

L Cost of service (Ps/Unit) 215

M % Subsidy component (K/L*100) 107%

N Comparable subsidy (IxM) (Ps/Unit) 69.76

O Wheeling price with comparable

cross subsidy (I+N) (Ps/Unit) 135.26

7.2 The applicants stated that need for “in-kind" settlement appears to follow from interpretationof licence language on adjustment. Adjustment can be made in two ways (i) by estimatingthe value of losses and included in price; or, (ii) by reducing the estimate of delivered energyto reflect losses. APTRANSCO in the interest of transparency chose to include value oflosses in the price of wheeling electricity.

7.3 APTRANSCO stated that Licencees filed FPT on 17-01-2001, where wheeling tariff of Re.1/- per unit was included. Hon'ble Commission in its tariff order dated 24-03-2001 decidedto consider the issue of appropriate transmission / distribution wheeling charges in aseparate proceeding. APTRANSCO /DISCOMs subsequently applied on 8-10-2001. Theseproceedings are essentially a continuation of earlier proceedings. Hence, the proposedwheeling charge is essentially a request for the year commencing 01-04-2001.

CHAPTER VIII

COMMISSION ANALYSIS

8.1 The Commission recognises the need for a consistent methodology for fixing of wheelingcharges for power developers and their scheduled consumers ( end Users)keeping in mindthe ground realities in A.P.

8.2 In the light of the contentions and submissions of the Applicants, Objectors and others,

the following issues arise for consideration in the present proceedings.

(i) Whether the Commission has the authority to determine Wheeling Charges? Whether the

Commission is bound by the notifications issued by the GoAP or the terms of the Wheeling

Agreement signed with the APSEB prior to the Reform Act coming into force ?

(ii) Whether the application for determination of Wheeling Charges filed jointly by APTRANSCO

and DISCOMS is valid and maintainable?

(iii) Whether the project developers who avail the wheeling service, either for captive

consumption or for third party sales/purchases, should be treated as the customers of the



consumption or for third party sales/purchases, should be treated as the customers of the

APTRANSCO or of the concerned Discom in whose area of supply the wheeled energy is

consumed?

(iv) If the project developers who avail the wheeling service are treated as the customers of

Discom in the area of supply, what should be the arrangement between the Discom and

APTRANSCO for the use of transmission system and what should be the arrangement

between the said Discom and other Discoms if the distribution systems of such other

Discoms are also used for the Wheeling of electricity?.

(v) What should be the method of Calculation of wheeling charges and the components to be

included therein? Whether it should be related to the voltage level at which the supply is

effected? Whether the technical and/or non-technical losses in the System below the level

of the voltage at which the service is availed should be included in the wheeling charges?

(vi) Whether the project developers availing wheeling services through the Transmission &

Distribution System in the State can be asked to contribute towards cross subsidisation in

the tariff that is applicable to the corresponding class of consumers of the Licencee?

(vii) Whether the Wheeling Charges should be determined for APTRANSCO and DISCOMS in a

consolidated manner and thereafter allowed to be shared in the proportion suggested by

the Applicants or whether such charges should be separately determined?

(viii) Whether the Wheeling Charges should be collected in cash or adjusted in kind or partly in

cash and partly in kind?

(ix) Whether the wheeling charges determined by the Commission can be given retrospective

effect from 1st April 2001 or in the alternative the wheeling charges can be annualised and

included in the balance period of the year 2001-02?

ISSUE NO. 1: Authority of the Commission to levy wheeling charges:

8.3 The act of wheeling is a service provided by the Licencee(s) to a customer of conveying

electricity from the place where the electricity is injected into the system to the place

where it is offloaded for consumption. Such conveyance is done through the transmission

system and/or the distribution system belonging to the Licencees concerned namely

APTRANSCO and DISCOMS. The charges for such services is a tariff within the meaning of

Section 26 of the Reform Act, 1998. Section 26 of the Reform Act, inter alia, reads as

under:

"26 (1). The holder of each licence granted under this Act shall observe the

methodologies and procedures specified by the Commission from time to time in

calculating the expected revenue from charges which it is permitted to recover

pursuant to the terms of its licence and in designing tariffs to collect those

revenues."

The subsequent sub-sections in section 26 deal with details and other aspects concerning

the fixation of Tariffs of Licencees. The APTRANSCO and the DISCOMS are Licencees under

the Reform Act; APTRANSCO having been issued the Transmission & Bulk Supply licence

No.1/2000 dated. Jan 31, 2000 valid for 30 years and the four Discoms having been issued

the Distribution & Retail Supply Licences Nos. 12 to 15 dated 29th Dec, 2000 valid for 30

years.

8.4 The explanation (b) under section 26 of the Reform Act defines the term “Tariff” as under:

“Tariff” means a schedule of standard prices or charges for specified services which

are applicable to all such specified services provided to the type or types of

customers specified in the Tariff notification”



customers specified in the Tariff notification”

8.5 Wheeling is a service provided by the Licencees and the schedule of charges for

such wheeling services is a tariff within the meaning of the section 26 of the Reform

Act. Further, Section 11(1) (e) of the Reform Act reads as under:

”11 (1) (e). to regulate the purchase, distribution, supply and utilisation of

electricity, the quality of service, the tariff and charges payable keeping in view both

and interest of the consumer as well as the consideration that the supply and

distribution cannot be maintained unless the charges for the electricity supplied are

adequately levied and duly collected; "

8.6. The Reform Act has been enacted with the purpose of vesting in the Commission all

regulatory powers concerning the electricity industry in the State including the powers to

adjudicate on tariffs and related issues. This is stated specifically in the Statement of

Objects and reasons of the Reform Act. The Preamble to the Reform Act states as under:

“An Act to provide for the constitution of an Electricity Regulatory Commission,restructuring of the Electricity Industry, rationalisation of the generation, transmission,distribution and supply of electricity avenues for participation of private sector in theElectricity Industry and generally for taking measures conducive to the development andmanagement of the Electricity Industry in an efficient, economic and competitive mannerand for matters connected therewith or incidental thereto.”

8.7 It has been held that the power to regulate is wide and includes the powers to determine

rates and charges. In V.S.Rice and Oil Mills v. State of Andhra Pradesh AIR 1964 SC1781, the Hon’ble Supreme Court held as under:

Page 1787 Para 20 “…………The word “regulate” is wide enough to confer power on

the respondent to regulate either by increasing the rate or decreasing the rate, thetest being what is it that is necessary or expedient to be done to maintain,increase, or secure supply of the essential articles in question and to arrange forits equitable distribution and its availability at fair prices. The concept of fairprices which S.3(1) expressly refers does not mean that the price once fixed musteither remain stationary, or must be reduced in order to attract the power toregulate. The power to regulate can be exercised for ensuring the payment of afair price, and the fixation of a fair price would inevitably depend upon aconsideration of all relevant and economic factors, which contribute to thedetermination of such a fair price. If the fair price indicated on a dispassionateconsideration of all relevant factors turns out to be higher than the price fixed andprevailing, then the power to regulate the price must necessarily include the powerto increase so as to make it fair. ………………..”

In Deepak Theatre, Dhuri v. State of Punjab 1992 Supp (1) SCC 684 at Page 687 Û

AIR 1992 SC 1519. The Hon’ble Supreme Court held as under Page 687 Para 3 - “It is settled law that the rules validly made under the Act, for

all intents and purposes, be deemed to be part of the statute. The conditions of thelicence issued under the rules form an integral part of the statute. The questionemerges whether the word regulation would encompass the power to fix rates ofadmission and classification of the seats. The power to regulate may include thepower to licence or to refuse or to requiring taking out a licence and may alsoinclude the power to tax or exempt from taxation, but not the power to impose atax for the revenue in rule making power unless there is valid legislation in thatbehalf. Therefore, the power to regulate a particular business or calling impliesthe power to prescribe and enforce all such proper and reasonable rules andregulations as may be deemed necessary to conduct the business in a proper andorderly manner. It also includes the authority to prescribe the reasonable rules,regulations or conditions subject to which the business may beconducted…………………”[emphasis supplied]



In Harishankar v. U.P. State Electricity Board AIR 1974 All 70 at para 5, the Allahabad HighCourt held as under:

Para 5 "….Thus the terms "tariff" includes within its ambit not only the fixation of rates butalso rules and regulations relating to it. When the electrical supply is being made on thefooting that the consumer will pay the minimum guaranteed charges, this charge is one ofthe terms of conditions for the supply. By it the supplier ensures the receipts of aminimum amount for the supply of electricity. In a sense the fixation of this charge wouldbe included in the fixation of rates for the supply of electricity. The word "tariff" in Section49 (1) appears to us to include the power to fix minimum guaranteed charges".

8.8 In terms of section 26 of the Reform Act read with the regulatory powers under section 11

of the Reform Act, the Commission has full power and authority to determine the wheeling

charges. The Commission therefore holds that the Commission has the authority under the

Reform Act to determine and decide on the Tariff and terms and conditions for the

provision of wheeling services by the Licencees.

8.9 As held in V.S. Rice Mills case, (supra) the Commission as the regulator and further being

vested with the statutory functions under the Reform Act has the authority to deviate from

the charges and also the terms and conditions contained in the Wheeling Agreements

earlier signed by APSEB and, for the same reasons from the earlier notifications issued by

the GoAP. It is the Commission’s duty to ensure that the charges for wheeling are levied in

a fair and just manner and are equitable and economical.

ISSUE NO. 2: Maintainability of Joint Application

8.10 The present application has been filed by AP TRANSCO and DISCOMS jointly. In the

present application the Commission is determining the principles on which wheeling charges

are to be calculated and applied. For reasons stated hereunder, the Commission is not

inclined to determine the wheeling charges for the year 2001-02 as the Commission is of

the opinion that in the facts and circumstances of the present case, there should be no

retrospective operation of the Wheeling Charges determined. The wheeling charges for the

year 2002-03 shall be determined along with tariff order for the said year. For reasons

explained in this order and based on the methodology adopted for calculation of Wheeling

Charges more fully explained later, the Commission is not inclined to allow apportionment

of the wheeling charges between APTRANSCO and DISCOMS in a consolidated manner as

suggested by the applicants.

8.11 The objection to the maintainability of the joint petition by APTRANSCO and DISCOMS

needs to be considered in the light of the above. There can be no legal objection as such

to the maintainability of the joint petition so long the Commission proceeds to determine

the issues taking into account the fact that APTRANSCO and DISCOMS are independent

entities. The Commission will proceed on the basis that though DISCOMS are wholly

owned subsidiaries of APTRANSCO at this point of time, APTRANSCO and DISCOMS are to

be treated as separate entities and determine the wheeling charges accordingly.

8.12 It is also relevant to note that the determination of wheeling charges with which we are

concerned at this stage relate to an integrated Transmission & Distribution system in the

State. The system was entirely owned and controlled by Andhra Pradesh State Electricity

Board(APSEB) initially and after the Reform Act it has come into the control of APTRANSCO

till 31.3.2001. The present application is the first of its kind to determine the applicable

wheeling charges fro the transmission & distribution system.

8.13 In the circumstances, the objection as to the basic maintainability of a joint petition by

APTRANSCO and DISCOMS cannot be sustained. In any event such an objection is

technical in nature and allowing the joint petition to be maintained will have no adverse

effect so long in substance as the Commission proceeds to determine the issues treating

APTRANSCO and DISCOMS as independent units and the determined tariff is fair to the

consumers availing wheeling service..



consumers availing wheeling service..

ISSUE No 3. Whose customers?

8.14 The transmission & distribution of electricity is technically an integrated activity as far as

the end user is concerned . The Wheeling of electricity from the place where it is injected

into the system to the place where it is consumed is to be considered as one indivisible

activity. This cannot be divided and looked as if an identifiable part of the activity is carried

by one licencee and the remaining identifiable part is carried by another licencee. This is

so as energy is supplied on displacement basis and it cannot be said that the very energy

pumped into the system at one place is delivered at another place. The energy from the

generating units, whether it is for sale and supply to APTRANSCO and then to Distribution

Licencees and then to the Consumers of the Distribution Licencees or directly sold to the

consumers wheeled through Transmission and/or the Distribution System, gets mixed in

the system and loses the relationship to the source. The energy eventually supplied to the

customer cannot be identified as having passed through only an identified part of the

transmission and/or distribution system or at an identified voltage level. In Wheeling, what

really happens is that the licencee supplies the wheeled consumer, energy in compensation

for the energy received into the system from the generator availing the wheeling service.

8.15 In view of the above it is not proper to provide for multiple contracts or multi-party

agreements in regard to the wheeling of energy. The wheeling agreement should

necessarily be between the project developer and one identified licencee in the system

8.16 Invariably the person who consumes the electricity wheeled has a parallel arrangement

with the Discom in the area of supply for the supply of electricity by the Licencee. There

do not exist two systems comprising of power lines and equipment, namely one for the

normal Licencee’s supply and the other for the wheeled energy. It is an integrated system

and it is not possible to identify the energy actually consumed as the one sold and supplied

by the Licencee and the other supplied by another and wheeled by the Licencees.

8.17 The allocation of recorded demand and energy between Licencee’s supply and wheeled

energy is done by a method agreed between the parties to the agreement. Such recording

is done by the Discom of the area of supply, even where the supply is effected directly

from the transmission system. For the electricity sold and supplied by the Licencee the

person supplied will be the consumer of Discom and not of the Transmission Company

notwithstanding that the supplies are made from the Transmission System directly.

8.18 It is therefore natural, just and proper that the project developer who avails the wheeling

service is also treated as the customer of Discom of the area where the electricity is

consumed even when the agreement is signed with the Generating Unit and irrespective of

the voltage level at which the supply is effected.

8.19 The above scheme is simple and implementable. In the scheme, there will be an identified

Discom which is already serving the person who will consume the electricity wheeled. The

Discom of the area of supply can in turn have arrangement with APTRANSCO and other

Discoms for the use of their system. There is no need to have tripartite or multiple

agreements with APTransco or Discoms for each of the wheeled consumers.

8.20 Accordingly the project developer who desires to wheel power will have agreement only

with the Discom of the area where the wheeled energy is consumed, irrespective of

whether the wheeling would involve the use of Transmission System of APTRANSCO or the

use of the Distribution System of other Discoms.

ISSUE NO 4: Nature of Arrangement between APTRANSCO and Discoms and

between Discoms:



8.21 The erstwhile Andhra Pradesh State Electricity Board (APSEB) had built the transmission &

distribution system and network essentially for the purpose of the distribution of electricity

in the state in discharge of the duties and functions under section 18 of the Electricity

(Supply) Act, 1948. This is a public utility service. Over the years investment has been

made in the system with the use of money contributed by public at large who are the

consumers of the APSEB and the GoAP. The activities of distribution and supply of

electricity by the Licencee-Discoms (which have succeeded to the above function of the

APSEB.) therefore, have the principal claim over the Transmission & Distribution Capacity

and network which now vest in APTRANSCO/ Discoms.

8.22 The distribution system is owned by the Discoms. The Transmission System vests in

APTRANSCO under the reorganisation of APSEB effected pursuant to the provisions

contained in the Reform Act. It is necessary to recognise this salient aspect and provide for

the use of the transmission system of APTRANSCO by the Licencee-Discoms. An exception

to be made is to the extent that the transmission capacity is used for inter state

transmission. Under the Electricity Laws as existing today namely the provisions of the 1910

Act, 1948 Act and the ERC Act (Central Act) and the Reform Act, the Inter State

Transmission falls within the jurisdiction and control of the Central Electricity Regulatory

Commission .

8.23 In accordance with the above, APTRANSCO should enter into an agreement with each of

the Discoms for the use of transmission system by the Discoms. Since the Discoms are

independent companies, it is important that an appropriate arrangement for the use of the

transmission system and payment of transmission charges are finalised and filed with the

Commission.

8.24 The Charges payable by Discoms to APTRANSCO shall be part of the consolidated charge to

be determined by the Commission while deciding on the Annual Revenue Requirements of

APTRANSCO.

8.25 Once the Discom has paid for the Transmission system for Wheeling services,it is entitled

to utilise the Transmission System for the retail supply of electricity to its consumers or to

wheel the electricity for other customers. The commission can determine the wheeling

charges payable to Discoms by such customers.

Arrangement between Discom

8.26 In addition to the utilisation of the transmission system of APTRANSCO, in a special case, a

Discom may also require the utilisation of the distribution system of another Discom to

provide the wheeling service required by its customers. In such an event, the Discom

should pay an appropriate charge to the other Discom as may be approved by the

commission from time to time and such charges shall be a pass through in the wheeling

charges of the Discom to its customers for whom such services are availed from other

Discoms.

ISSUE NO 5 Calculation of wheeling charges.

8.27 The wheeling charges should be calculated for wheeling the contracted energy namely, the

number of units. The project developers availing the wheeling service should pay realistic

cost of such services.

8.28 The contention that the system losses only upto the voltage level at which the electricity is

supplied to the end user should alone be taken for determining the wheeling charges is

apparently an attractive argument but an over simplification of the matter in issue. In an

integrated system where electricity is supplied on displacement basis rather than direct

conveyance of the particular electricity generated, the technical losses upto the voltage

level at which the electricity is delivered alone cannot be considered. The technical losses

of the total system need to be taken into account as it is impossible to determine

electricity from which source is being supplied to which particular customer. The electricity



electricity from which source is being supplied to which particular customer. The electricity

from all sources gets combined in the system and loses its identity

8.29 Similarly, non-technical losses in the system are also to be taken into account as these are

also an integral part of the system. Although, apparently, the delivery of electricity at say,

132 KV to the customer should cover the loss upto 132 KV only but a realistic approach

should be that losses in transmission & distribution system as a whole ( which as

mentioned above is an integrated system) should be taken into account while calculating

the amount of energy to be supplied to the customer. If the entire system losses are not

taken into account for determining the charges for wheeling, it will be discriminatory

between similarly placed persons who are getting electricity by the use of the same

Transmission & Distribution system and are bearing the cost of losses in Transmission &

Distribution System. It will not be just and proper for the Licencee’s consumers to pay for

all such losses in the system and for the project developers availing the wheeled services to

pay for the use of the system only without sharing such losses in the system. The use of

the system cannot be isolated from the losses in the system as they form an integral part

of the system. The system losses, whether technical or non technical, should be borne by

all persons using the system. Incidentally, the terms of licences issued to APTRANSCO and

DISCOMS specifically refer ( para 20 of the T&BS licence and para 18.5 of the D & RS

licence ) to “ deliver such electricity, adjusted for losses of electricity, to a designated exit

point.” ( emphasis supplied ).

ISSUE No 6: Adjustment for cross subsidy

8.30 The technical and non technical losses in the system have a nexus to the use of the

transmission & distribution system by the project developers who seeks to avail the

wheeling services and therefore are to be taken into account in determining the charges for

wheeling services. The element of cross subsidisation has no nexus to the Transmission &

Distribution System as such and arises out of subsidisation of one class of consumers by

another class which is really an economic issue. The element of cross subsidisation cannot

therefore be taken into account while determining the Tariff or charges for wheeling.

ISSUE No. 7: System of Sharing of Wheeling charges:

8.31 As mentioned under issue No 4, the project developer who wishes to avail the wheeling

services will contract with the Discom in whose area of supply the energy to be wheeled is

consumed and pay the charges to such Discom. There will be no arrangement between

such project developers and APTRANSCO or other Discom. It will be for Discoms and

APTRANSCO to have arrangement between themselves in regard to the use of the system.

There will therefore be no apportionment of wheeling charges as such between

APTRANSCO and Discom as suggested by the applicants.

ISSUE No. 8: Wheeling charges – Cash or in kind

8.32 While some of the Objectors opined that payment in kind was apt as it took care of

inflation, the licencees felt the payment in kind was not compensating their costs and that

there was need to changeover from an in-kind regime to an in-cash regime.. The

Commission feels that while there could be no objection for compensation of losses in kind,

there would be no rationale for continuing with payment in kind in respect of other costs

etc.

8.33 It will be appropriate to adjust the losses in the system in kind rather than in cash. This

will also be in line with the terms of the licences ( paras 20 and 18.5 of the T & BS and D& RS licences respectively) which lay down that the licencee shall “deliver such electricity,adjusted for losses of electricity, to a designated exit point”. The losses in the system aredetermined by the Commission on an annual basis and the quantum of wheeled electricityto be supplied can be reduced by the extent of the losses determined by the Commissionwhich will be applicable to Tariff for both the licencee’s consumers and the consumers of



which will be applicable to Tariff for both the licencee’s consumers and the consumers ofthe wheeled energy. This will also avoid incremental cost on account of purchases to bemade by DISCOM. If the losses are adjusted in cash, it would mean that the DISCOM isrequired to supply the full quantum of electricity collected by it from the supplier, to thewheeled consumer. The DISCOMS will have to acquire equivalent power from high costgenerating companies to cover the shortage in supply of power against the losses.

8.34 The remaining part of the charges for wheeling (namely the cost of network and other

charges) should be paid in cash.8.35 In accordance with the above there will be two types of charges for Wheeling Services

namely (a) Adjustment in kind for losses in the system and (b) cash payment for the useof network and other charges.

ISSUE No 9: Retrospective Effect:

8.36 The Applicants could have filed details in support of the wheeling charges sought by them

immediately after notification of the tariff for the year 2001-02. The Applicants filed the

affidavit instead only in October and that too without adequate particulars. It will not

therefore be appropriate to give retrospective effect to wheeling charges at this

stage.Further wheeling charges have already been collected in accordance with the earlier

tariff order and the Annual Revenue Requirement of the licencees also has been met. . MISCELLANEOUS 8.37 Wheeling Charges should be applied to all persons who avail the service of wheeling

without discrimination. The Non Conventiional Energy Developer should also pay thewheeling charges like others.

Chapter- IXTariff Structure-Wheeling Charges

. 9.1 Para 20 Of the Bulk Supply Licence and Para 18.5 of the Distribution Licence lay down that

the Licencee shall make such arrangements for the use of the Transmission (Distribution)systems by third parties as specified in the relevant Para. and, "to deliver such electricity,adjusted for losses of electricity, to a designated exit point". Further, only developers towhom consent has been accorded by the Commission will be entitled to wheel their energyusing the network of the Transmission & Distribution companies.

9.2 Further under Section 26 of the Reform Act and as per the terms of the licences, theCommission has to fix tariffs which include wheeling charges in accordance with theaccepted financial principles and in line with its tariff philosophy. The methodology for fixingwheeling charges will therefore be guided by Sec 26 and Sec 11. (1) (e) of the Reform Act.

9.3 Data availability constrains the design of the wheeling charges. Part of the reason for thisperhaps is that for too long the Power Sector had functioned under a vertically integratedstructure which lacked modularity. The Licencees have to get over this fixation, if thecomplexities of wheeling tariffs are to be unravelled..The Commission notes that there area number of methods of pricing wheeling charges in vogue all over the world like Flat Fee,Postage Stamp, Proforma Tarriffs, Megawatt-Mile, Contract Path, Rated System Path,Locationally based Marginal costing, etc. The Commission also recognises that even withextensive data available (as in the case of advanced countries), transmission pricing is stillbased on a number of assumptions . For these reasons, there have been divergent viewson the rationale (or otherwise) behind each of the transmission pricing methodologies invogue all over the world some of which are mentioned by the staff in their presentation. There is a constant search for a universally acceptable wheeling tariff design.

9.4 In a the contract path or a Megawatt mile approach, the determination of a notionalpathway between the Wheeling Generator and end-user of Wheeled Power and thedelineation and identification of entry points and delivery points at different voltages and inrespect of different Licencees existing enroute is necessary. Development of such a



respect of different Licencees existing enroute is necessary. Development of such a notional pathway for developing Megawatt Mile charges for each of the parties using thewheeling service is currently not feasible, particularly as the end users are not fixed and arechanged often. Also the network that was built for an integrated public utility has yet todevelop the contours of unbundled business entities in terms of asset demarcation inphysical and financial terms.

9.5 Since, in an integrated transmission network, power flows unpredictably and is for

convenience generally reckoned to follow the principle of displacement, to draw uphypothetical transmission lines between each developer and each of its many customersis difficult. Sophisticated data and load flow studies, strengthening of Transmission &Distribution lines, interface metering with better (0.2 accuracy class) meters needs to be inplace before attempting to develop complex wheeling tarriffs suited to each projectdeveloper, its consumer and the wires businesses. Such complex computations may not befeasible at present particularly when there are many retail end users of the WheeledPower. So, while the Commission has paid attention to presentations which havehighlighted the multifarious methods such as nodal prices generally adopted insophisticated transmission networks, it feels there is much to be said in favour of fixingnetwork charges for the present on simple principles which enable laying the foundationsfor elaborate determination of Wheeling Tariffs later taking into view the complexities ofpower sector business in A.P.

9.6 For the above reasons the Commission intends to take the simple model proposed by thelicencees with appropriate changes as the basis for finalising the wheeling tariff. As alreadyindicated above the wheeling charges to be fixed will not be given retrospective effect asclaimed by APTRANCO but will be implemented only from the year 2002-2003 onwards.Subsequent wheeling tariff proposals will build on the principles applied herein but willseek to evolve into modular tariffs reflecting the interests of the various stakeholders more explicitly. Similarly the issue of Capacity charges will be considered in future. At thisstage the Commission will proceed on the basis of energy contracted to be wheeled.

Network Charges; 9.7 The Commission staff and several Objectors felt that the network and other charges should

have been allocated not just over the energy purchases of APTRANSCO, but over theentire energy handled by the system. Managing Director, APCPDCL, in his submission on20-12-2001 requested the Commission to accept this cost as the same cost was applied forarriving at the tariff for various categories of consumers in its tariff order for 2001-02. Butthe objectors receiving supply at EHV Level feel that network costs relating to DISCOMsystem should not be passed onto them. They also plead that the charge should varyaccording to the voltage level at which it is delivered. The Commission feels, as alreadydiscussed, that there is force in the argument that the allocation of network and othercharges per unit shall be over the entire system (grid) energy. The network costs willtherefore be distributed over the entire system. The Commission also feels that the ExternalWheeling Charges can also be included in the wheeling charges for the reason that theenergy reaching the wheeled consumer is from the grid pool and external wheelingcharges are part of the common costs to be borne by all users of the network includingthose availing the wheeling service.

Surplus Recovery

9.8 The Applicants have sought to charge a surplus of 19.26 ps/kWH for the year 2001-2002as an adjustment for the differences in embedded costs and Long Range Marginal Costs. APTRANSCO also pointed out that the cost to serve wheeled consumers was higher thanthat to serve the native loads. The Licencees also sought the surplus recovery to coverother costs like reactive power compensation etc., besides cross subsidy. The Commissionstaff felt that the surplus recovery was not justified for want of quantification.

9.9 In view of the methodology adopted by the Commission namely determining the wheelingcharges accounting for all system losses and not accepting the loading of the cross subsidyelement and in the absence of detailed calculations surplus recovery of 19.26 ps/kWH is



element and in the absence of detailed calculations surplus recovery of 19.26 ps/kWH isnot allowed by the Commission.

9.10 However it is noticed that ,the Power Trading Corporation maintains a margin for thebalancing services rendered by it. In any T & D system, frequency and voltage stabilityrequires matching between consumption of energy (both active and reactive ) andgeneration of energy by the system operators Besides ensuring this energy balancing, theLicencees render various other valuable services like reactive compensation, emergencypower, continuous network access, metering & billing and other consumer services etc., tothe wheeled consumers and their project developers.. In this context the Commissionprefers to introduce an appropriate charge as Balancing and ancillary service charge (assought for by some objectors representing general public and the staff )in the case of thisand the future tariff determinations. Keeping all these unrecovered costs and variousservices not included in other charges mentioned above (and not cross subsidy) in viewand for reasons mentioned hereinabove for the present the commission allows a charge of 10ps per kWh on the wheeled energy as Balancing and ancillary charges.

9.11 The Network charges together with the system losses are determined in the Tariff Order forthe year 2002-2003. Now that it has been decided not to give retrospective effect to thewheeling charges determined herein, it is proposed to fix the wheeling charges based onthe network charges and losses finalised in the tariff order for 2002-03. Accordingly thenetwork charges and system losses as finalised by the Commission in the Tariff Order for2002-2003 are taken into account for fixing wheeling charges for the year 2002-2003

9.12 The wheeling charge leviable from 1-4-2002 for the F.Y. 2002-2003 is accordingly workedout as below. .

Calculation of Wheeling Charges for 2002-03 : a) In cash : Particulars of Expenditure Amt. Rs.

Crs

Wages and Salaries 490.65 Administration and General

expenses105.20

Repairs and Maintenance 185.66 Rent Rates & Taxes 5.13 Approved Loan Interest 560.31 Security deposit interest 31.37 Legal Charges 0.97 Audit and other Fees 2.23 Depreciation 508.59 Other Expenses 39.30 Contribution to staff pension

and gratuity64.95

Contribution to ContingencyReserve

21.45

Sub Total of Expenditure 2015.81 Reasonable Return 82.37 Total Gross Revenue

Required2098.18

Less Non Tariff Income 529.86 NET REVENUE

REQUIREMENT1568.32

Million Units ( Gross) 41954 (Discoms 39259

+ Wheeling 2695)

Rate in

Paise

Network Charges includingreasonable return

37ps/kwh (1568.32 Crs. / 41954 MU)

Wheeling charges (External) 3ps/kwh (Based on

Information)

Balancing and ancillary Charges 10ps/kwh



Total Wheeling Charges in Ps/Unit 50ps/kwh ( Total of above threecharges)

.b) In kind:

In addition, wheeling charges in kind of 28.4% of energy input by the project developerinto the Licencee’s grid being the system loss are leviable.

General Conditions for wheeling charges. 9.13 The application for Wheeling Charges will be made annually with the filings of Annual

Revenue Requirements by the Licencees and the charges will be adjusted in relation tothe approved network & other costs and losses projected in the filings and as accepted bythe Commission.

9.14 Wheeling charges are applicable uniformly to all project developers. The network andbalancing & ancillary charges will be recovered in cash and the losses in kind.

9.15 In case the GOAPdesires to allow wheeling of power to any person/s at lesser rates thanprescribed by the Commission, they can do so only if they agree to compensate therespective licencees for the loss of revenue.

9.16 The licencees are required to submit the tariff filings based on embedded costs as well asmarginal costs as per the guidelines issued by the Commission, in regard to the futurefilings for wheeling tariffs.

9.17 This order will apply uniformly to all classes of users of wheeling service including Non-conventional Energy Sources and irrespective of voltage level of connection of developeror his end user..

This Order is signed by the Andhra Pradesh Electricity Regulatory Commission on 24 March,2002.These charges will be effective from the 1st of April 2002

Annexures: A to D

Sd. Sd. Sd.(A.V.SUBBARAO) (D.LAKSHMI NARAYANA) (G.P.RAO)

MEMBER MEMBER CHAIRMAN

Documents

APERC Wheeling Calculation