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URT Report Task 5 - Scientific Study for Implementing Uniform Tariffs in Mumbai

9thJuly 2011

PricewaterhouseCoopers Private Limited, 17th Floor, Tower – “C”, Building No. 10, DLF Cyber City,Gurgaon – 122 002 T: +91 (124)330 6000, F:+91 (124) 300 6999, www.pwc.com/

Secretary, Maharashtra Electricity Regulatory Commission 9th July 2011 Dear Sir Subject: Report on the Scientific Study of Implementing Uniform Retail tariffs in Mumbai We, PricewaterhouseCoopers Pvt. Ltd., enclose herewith the Report on the Scientific Study of Implementing Uniform Retail tariffs in Mumbai. The report covers the Background analysis on distribution scenario and consumer tariffs in Mumbai, Reasons for variation in Tariffs in Mumbai, Regulatory Provisions of Implementation of URT, Feasibility Analysis and Road Map for Implementation of URT in Mumbai. Yours sincerely,

Kameswara Rao Executive Director, PricewaterhouseCoopers Pvt.Ltd [email protected] Tel: + 91-40-66246688

Report on Scientific Study for implementing Uniform Tariffs in Mumbai

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PricewaterhouseCoopers Private Limited (“PricewaterhouseCoopers”) has taken all reasonable steps to ensure that the information contained herein has been obtained from reliable sources and that this report is accurate and authoritative in all respects. However, this report is not intended to give legal, tax, accounting or professional advice. No reader should act on the basis of any information contained in this publication without considering and, if necessary, taking appropriate advice upon their own particular circumstances. If such advice or other expert assistance is required, the services of a competent professional should be sought. This report (and any extract from it) may not be copied, paraphrased, reproduced, or distributed in any manner or form, whether by photocopying, electronically, by internet, within another document or otherwise, without prior written permission . Further, any quotation, citation, or attribution of this publication, or any extract from it, is strictly prohibited without prior written permission.


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Abbreviations

ACoS Average Cost of Supply

ABR Average Billing Rate

ARR Aggregate Revenue Requirement

BEST Brihan-Mumbai Electric Supply and Transport Undertaking

BPL Below Poverty Line

CAGR Compounded Annual growth Rate

Capex Capital Expenditure

DBST Differential Bulk Supply Tariff

FY Financial Year

GoNCTD Government of National Capital Territory Delhi

HT High Tension

kW Kilo Watt

LT Low Tension

MERC Maharashtra State Electricity Regulatory Commission

MSEDCL Maharashtra State Electricity Distribution Company

NCR National Capital Region

PPCL Pragati Power Corporation Limited

RInfra-D Reliance Infrastructure Ltd. Distribution

RPS Renewable Purchase Specification

RPO Renewable Purchase Obligation

SLDC State Load Despatch Centre

TPC-D Tata Power Company-Distribution

TPC-G Tata Power Company-Generation

TPS Thermal Power Station

TPTCL Tata Power Trading Company Limited

YoY Year on year


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Table of Contents

Section I – Introduction ................................................................................................................ 7

Purpose of this report .................................................................................................................................................... 7

Structure of this report .................................................................................................................................................. 7

Section II – Background .............................................................................................................. 8

Existing Electricity Distribution Scenario in Mumbai ............................................................................................... 8

Status of Retail tariffs in various states ....................................................................................................................... 8

Need for Scientific study for implementation of URT in Mumbai ........................................................................... 11

Section III: Reasons for variation in Tariffs in Mumbai ............................................................. 13

Tariff ............................................................................................................................................................................. 13

Average Cost of Supply ................................................................................................................................................ 15

Components of ARR .................................................................................................................................................... 15

Sales and Revenue Mix ............................................................................................................................................... 20

Cross Subsidy Levels ................................................................................................................................................... 21

Section IV-Regulatory framework ............................................................................................. 23

Electricity Act, 2003 ............................................................................................................................................. 23

National Tariff Policy ............................................................................................................................................ 24

Section V- Feasibility analysis for implementation of Uniform Tariffs across utilities .............. 26

Tariff Equalisation Mechanisms ............................................................................................................................... 26

Differential Bulk Supply Tariff/Allocation of Low Cost Power .......................................................................... 26

Differential Transmission Charges ...................................................................................................................... 29

Geographical Boundary Redefinition .................................................................................................................. 29

Inter Utility Transfers ........................................................................................................................................... 30

Government Support .................................................................................................................................................. 36

Comparison of Tariff Equalisation Methods .............................................................................................................. 41

Summary of Simulations ............................................................................................................................................. 41

Section VI- Roadmap for implementation of Uniform Retail Tariffs in Mumbai ....................... 44

Need for the Roadmap ............................................................................................................................................... 44

Approach and Methodology ....................................................................................................................................... 44

Key Enablers .......................................................................................................................................................... 44

Summary of the support required under each Scenario (Rs. Crs) ........................................................................... 52


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Section VII: Annexure................................................................................................................. 53

Annexure I: Applicable Tariffs across Mumbai ........................................................................................................ 54

Annexure II: Case Study – Retail Tariffs in Delhi .................................................................................................... 55

Annexure III: Key Assumptions ................................................................................................................................. 61

Annexure IV: Scenarios ............................................................................................................................................... 71


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Section I – Introduction Purpose of this report The report will serve as a report for study on Implementation of Uniform Retail Tariff (URT) in Mumbai.

Structure of this report The report has been structured in the following sections:

Section 1- Introduction: This section provides a snapshot of the aspects that would be covered in the subsequent sections.

Section 2-Background: This section provides an overview of the distribution licensees in Mumbai and the present scenario of electricity supply in Mumbai.

Section 3-Reasons for variations in tariffs in Mumbai: This section provides the analysis of the commercial structure of the distribution licensees and reasons causing variedness in Tariffs.

Section 4-Regulatory Framework: This section details out the various legislative provisions in the context of URT.

Section 5-Feasibility analysis for Implementation of Uniform Retail Tariff (URT): This section details out the various methods of implementation of URT and their feasibility in Mumbai.

Section 6-Roadmap for implementation of Uniform Retail Tariff in Mumbai: This section details out the projections for various components of ARR for laying the roadmap and the various scenarios for URT roadmap.


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Section II – Background Existing Electricity Distribution Scenario in Mumbai

There are four distribution licensees supplying electricity in the city of Mumbai namely Brihan-Mumbai Electric Supply and Transport Undertaking (BEST), Maharashtra State Electricity Distribution Company Ltd.(MSEDCL), Reliance Infrastructure Ltd. Distribution(RInfra-D), and Tata Power Company Limited – Distribution (TPC-D).

The study on the implementation of Uniform Retail Tariffs has not covered the MSEDCL area of Mumbai because it may not be feasible to cover only one area out of the full area of operation of MSEDCL (State of Maharashtra) for tariff uniformity.

The table below provides the overview of the three distribution licensees covered under this study.

Table 1: Overview of the three distribution licensees1

Licensee RInfra-D BEST TPC-D

Geographical

Licensee Area

North Mumbai and Suburban

areas (approx. From Bandra to

Dahisar, Mira/ Bhayander/

Chunabhatti, to Mankhurd,

Vikhroli , etc)

South Mumbai area

(Island city, approx.

from Colaba to Sion

/Mahim)

Entire Mumbai city and suburbs

(excluding Mira-Bhayendar and

excluding MSEDCL served areas)

Area 385 Sq Km 70 Sq Km 454 Sq Km

Total no. of

Consumers

Approx. 26.50 Lakhs Approx. 9.80 Lakhs Approx. 2.17 Lakhs

Power Sourcing

Arrangements

RInfra-Generation: Dahanu TPS

(500MW),Renewable power

sources, Short-term purchases

from external sources

Tata Power Company-

Generation (TPC-G),

Renewable power

sources, Short-term

purchases from external

sources

Tata Power Company-Generation

(TPC-G), Renewable power

sources, Short-term purchases

from external sources

Status of Retail tariffs in various states Uniform Retail Tariffs are prevalent in many states in India. In most of those states, such uniformity results from the fact that there is a single, large distribution licensee either in the form of a State Electricity Board or its successor entities that caters to all consumers in the state. In states where the reorganisation of the SEB led to creation of multiple licensees, for example in Orissa and Delhi, attempts have been made by the State Governments, in line with Clause 8.4(2) of the Tariff Policy, to bring about uniformity in tariffs in the period immediately after the reorganisation. This has been achieved either by allocation of low cost PPAs to licensees with unfavourable consumer/sales mix or by adoption of a formal mechanism of Differential Bulk Supply Tariff. The table given below compares the mechanism by which uniformity in tariffs is maintained in various states in India.

Andhra Pradesh (AP): There are four distribution companies in AP namely Central Power Distribution Company of Andhra Pradesh Limited, Eastern Power Distribution Company of Andhra Pradesh Limited, Northern Power Distribution Company of Andhra Pradesh Limited and Southern Power Distribution Company

1 As on 31st March, 2010


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of Andhra Pradesh Limited, with each of them having uniform Tariff. The uniformity in tariff is maintained via differential subsidy to Discoms from the Government of Andhra Pradesh (GoAP) to categories namely- Domestic, cottage industries, public lighting, general and irrigation & agricultural.

Delhi: In Delhi there are four distribution licensees, namely, North Delhi Power Limited (NDPL), BSES Rajdhani Power Limited (BRPL), BSES Yamuna Power Limited (BYPL) and New Delhi Municipal Council (NDMC). While NDMC is a state run organisation, the other three are private utilities in which the Government of Delhi has a minority holding. The Policy Directions issued by the Government of Delhi as a part of the privatisation process mandated that the retail tariffs for all private DISCOMs shall be uniform till the end of FY 06-07. To facilitate this, Differential Bulk Supply Tariff (DBST) for each DISCOM was determined on the basis of its paying capacity. The State Government also provided support of upto Rs 3452 Cr to bridge the gap between the cost of power and the amount paid by DISCOMs under the DBST mechanism2.

After the policy direction period ended, the DBST mechanism ceased to exist and therafter PPAs were assigned to the utilities in such a manner that the tariffs are uniform across different license areas. Also, upto 15% of the capacity of NCR Dadri TPS, IPGCL and PPCL was treated as unallocated and is provided to the DISCOM facing higher costs, by the State Government, to lend a measure of equalisation to the power purchase cost incurred by the different licensees. However, the responsibility for managing power purchase has been transferred to the distribution companies and there is thus no policy currently in place that requires Uniform Retail Tariffs to be maintained in Delhi. The tariff in the NDMC area continues to be different. Meanwhile, uniform tariffs have been approved for all DISCOMS in the tariff orders issued by the Delhi Electricity Regulation Commission (DERC) since FY 07-08.

In the tariff order for FY 07-08, the DERC determined tariffs in such a manner that the utility with the highest costs (i.e. BYPL) was able to meet its revenue gap. The other two DISCOMs which had a revenue surplus were allowed to charge a tariff, higher than the tariff required to meet their revenue requirement. The additional amount recovered by these DISCOMs was retained by the licensees, but was parked separately as a Contingency Reserve to be used at a later stage.

In its last tariff order, for FY 09-10, the DERC approved a revenue surplus for each of the DISCOMs which had benefitted from reduction in AT&C losses in the city. The Commission continued the policy of uniform tariff for FY 09-10 as well and approved a differential revenue surplus for each utility.

Gujarat: In Gujarat there are four state owned distribution companies namely- Dakshin Gujarat Vij Company Limited, Madhya Gujarat Vij Company Limited, Paschim Gujarat Vij Company Limited, Uttar Gujarat Vij Company Limited and one private distribution licensee i.e., Torrent Power Limited that supplies power to the areas of Surat, Ahmedabad & Gandhinagar. The tariff charged by state owned distribution companies is different from that of the private licensee. The private licensee charges different tariff between the two areas it supplies electricity to i.e., the tariff in Surat are different from that of Ahmedabad & Gandhinagar. The uniformity in tariffs amongst the state distribution utilities is maintained by reallocation of PPA‟s and differential subsidy based on the sales made to the agricultural category.

Orissa: There are four distribution companies viz. Central Electricity Supply Utility of Orissa (CESU), Southern Electricity Supply Company of Orissa Ltd.(SOUTHCO), Western Electricity Supply Company of Orissa Ltd.(WESCO) and North Eastern Electricity Supply Company of Orissa Ltd.(NESCO) in Orissa with each having uniform tariff. The distribution companies are privately owned. The uniformity in tariffs is maintained by having a differential bulk supply tariff. The DBST is determined based on the expected estimated revenue at the disposal of the utilities and their ability to pay the power bills, the transmission charge bills including SLDC charges and meet their statutory obligations including meeting the expenses towards establishment, maintenance and other allied expenses. The table below shows the DBST charged from each of the utilities.

2 Details of the DBST mechanism in Delhi are given in Section V of this report


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Table 2: DBST in Orissa

Name of the Utility DBST (Rs./unit)

CESU 2.19

NESCO 2.62

WESCO 2.62

SOUTHCO 1.35

Rajasthan: In Rajasthan there are three state owned distribution companies viz Ajmer Vidyut Vitran Nigam Ltd. (AVVNL), Jaipur Vidyut Vitran Nigam Ltd. (JVVNL) and Jodhpur Vidyut Vitran Nigam Ltd. (JdVVNL). The Government provides differential subsidy to the distribution companies based on the quantum of agriculture sales made by them. Also there exists untreated gap for the distribution licensees. Moreover, the state has not witnessed a tariff hike since FY 05 and therefore the tariffs have remained at the same level.

Jharkhand: The primary supplier of electricity in the state is the Jharkhand State Electricity Board (JSEB). Besides JSEB, there are three other distribution licensees in the state, namely, Jamshedpur Utilities and Services Company (JUSCO), Tata Steel Limited (TSL) and Steel Authority of India Limited, Bokaro (SAIL-Bokaro) which supply power to the district of Saraikela-Kharsawan, the city of Jamshedpur and Bokaro Steel City respectively3. While the tariffs of JUSCO in the district of Saraikela-Kharsawan and Bokaro Steel City have been maintained at similar level as JSEB though untreated gaps and creation of regulatory assets, the tariffs in Jamshedpur are different than the tariffs in the rest of the state. The Uniform Retail Tariffs are not mandated by the State Govt. and the tariffs for each licensee are reflective of its cost of supply and consumer mix.

Haryana: In Haryana there are two state owned distribution utilities viz. Uttar Haryana Bijli Vitran Nigam Limited (UHBVNL) and Dakshin Haryana Bijli Vitran Nigam Limited (DHBVNL). The uniformity in tariffs is maintained via allocation of differential subsidy to the DISCOMs based on the projected volume of sales to agriculture consumers. There also exist approved untreated gap for both the DISCOM‟s.

Table 3: Uniform Retail Tariff in India: A Comparison

State Uniform/

Differential

Retail Supply

Tariff

Differential

Bulk

Supply

tariff

Inter

Utility

Transfers

Regulatory

Asset/

Untreated

Gap

Support Re-

allocation

of PPA

Andhra

Pradesh

Uniform No No Yes No

Orissa Uniform Yes No Yes No NA

Gujarat Differential No No Yes Yes

Rajasthan Uniform No No Yes Yes No

Delhi Differential Yes No Yes No Yes

Jharkhand Differential No No Yes No No

3 Besides these licensees the Damodar Valley Corporation (DVC) is also a deemed licensee in the state, supplying power at 33kV to DVC Command area


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Haryana Uniform No No Yes Yes No

Source: Tariff Orders and PwC Analysis

Need for Scientific study for implementation of URT in Mumbai Need for Scientific study for implementation of URT in Mumbai arises on account of:

a) Changing distribution scenario in Mumbai

The Hon‟ble Supreme Court in its judgement dated 8th July 2008 said that Tata Power Company (TPC-D) has license to supply electricity to retail consumers and TPC-D can utilize the facility of wheeling on RInfra-D, network to meet its obligation of supplying power on demand to the consumers in these areas. Subsequently, MERC facilitated this proposal by taking appropriate view in the TPC-D Tariff Order and order in Case No 50 of 2009 dated 15th October 2009 setting out the detailed operating procedure/protocol for change-over of consumers. With the advent of this protocol significant consumer base changed-over from RInfra-D to TPC-D due to the benefit in tariff received by changing-over.

b) Concerns of Stakeholder

Various stakeholders have raised concerns over the different electricity tariffs being charged by different licensees in the same city and have suggested that the retail tariffs should be uniform across Mumbai, irrespective of which licensee supplies the electricity. Annexure I of this report shows the applicable energy charges for the distribution licensees.

Further, in the public hearings held on 28th June 2010 and 3rd July 2010 on Case 134 of 2010 there have been strong objections by the consumers/stakeholders for the likely impact on their tariffs due to migration of consumers. One of the suggestions submitted during the public hearings was the implementation of Uniform Retail Tariff for all the licensees so that competition moves from tariff based competition to service based competition.

c) Variation in cost components

The tariffs across the licensees vary due to the difference in cost of supply of these licensees, as depicted below:

Table 4: Summary of the Aggregate Revenue Requirement (ARR) of the distribution Licensees

TPC-D RInfra-D* BEST

Components Amount (Rs.

Cr)

% of total

ARR

Amount (Rs.

Cr)

% of total

ARR

Amount (Rs.

Cr)

% of total

ARR

Power Purchase Expenses5 1,892.39 86.39% 4,602.17 68.93% 2088.89 82.69%

Operation and Maintenance

Expense

72.71 3.32% 566.82 8.49% 275.41 10.90%

Depreciation 20.81 0.95% 76.16 1.14% 48.92 1.94%

Interest & other finance

charges

39.44 1.80% 135.55 2.03% 42.29 1.67%

Others6 59.47 2.71% 223.36 3.35% 165.36 6.55%

Non Tariff income -14.22 -88.41 -90.49

Truing up effects of the past

years

119.89 1161.09 -4.12

4 Case 13 of 2010 refers to Government Memorandum issued dated 7th May 2010 on which Public hearing was held. 5 Including external power purchase, transmission charges, standby charges and wheeling charges paid 6 Includes bad debts, return on equity, contingency reserve and income tax


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Aggregate Revenue

Requirement7

2,190.49 6,676.74 2,526.26

Sales (MU) 4053 8676 4390.32

ACoS including True up

impact

5.40 7.70 5.75

ACoS excluding past True up

impact

5.11 6.37 5.76

Source: MERC Tariff orders for FY 10-11, and FY 09-10 Order for RInfra-D

The tariff rates are an output of the Aggregate Revenue Requirement (ARR) and around 80% of ARR is made up of power purchase cost. The power for Mumbai distribution licensees is sourced from the Tata Power‟s generation plants in Mumbai, Dahanu power plant of RInfra-G and external sources of power. Historically, TPC-G catered to Mumbai‟s power demand along with RInfra-G‟s Dahanu Power Plant. However, TPC-G reduced its power supply to RInfra-D due to the non-execution/delay in signing of PPA by RInfra-D and after the Hon‟ble Supreme Court judgement in favour of Tata Power. Consequently, to meet its immediate power demand RInfra-D had to resort to power purchase from short-term market and tied up power on medium-term basis with rates of Rs 4.80 -Rs 4.85 per unit.

Over the last two years, the power purchase portfolio for RInfra-D has undergone a significant change. The sourcing of power from TPC-G power plants reduced from a peak of 51.6% in FY 07-08 to a low of 28.9% in FY 09-10, the reason for the decline was the non-signing of PPA between the TPC-G and RInfra-D as well as the approval by MERC of PPA between TPC-G and BEST for 800 MW. Post signing of PPA between TPC-G and BEST, the share of RInfra-D from TPC-G has been reduced to 500 MW and less in subsequent years. The reduction in power availability from TPC-G to RInfra-D resulted in the latter sourcing power via short-term purchase and imbalance pool. The short-term purchase of RInfra-D increased from a low of 4% in FY07-08 to 26% in FY09-10. The table below shows the power purchase profile of RInfra-D.

Table 5: Power Purchase Profile and ACoS for RInfra-D

Particulars 2007-08 2008-09 2009-10

Energy Sales (MU) 7807 8270 8676

Power Purchase (MU) 9208 9676 10188

Source of power purchase

RInfra-G 4089 4025 3915.24

% Contribution 44.4% 41.6% 38.4%

TPC-G 4747.76 2972 2941.48

% Contribution 51.6% 30.7% 28.9%

Others (incl. short-term purchase)

371.24 2679 3331.28

% Contribution 4% 28% 33%

Power purchase per unit 8(Rs./unit)

4.13 5.99 5.09

Average CoS9 (Rs./unit) 5.43 7.24 6.3710

Source: MERC Tariff Orders

The change in power purchase portfolio led to an increase in the ACoS for RInfra-D from Rs 5.43 per unit to Rs 7.70 per unit in two years. This increase got reflected in higher tariff in RInfra-D license area. As is evident from above, there is a need to analyze the option of uniformity in retail tariffs due to the changing scenario in Mumbai electricity distribution, concerns shown by the stakeholders and the variation in cost components among licensees. The major difference in tariff is brought about by the varying cost of supply, which is contributed mainly by the power purchase cost incurred by the licensees.

7 Including past True up impact 8 Power purchase cost per unit of sales 9 It does not include past True up impacts 10 including past true ups it is Rs. 7.70/ unit


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Section III: Reasons for variation in Tariffs in Mumbai This chapter elaborates the Tariff11, component-wise ARR; sales mix and cross-subsidy levels, i.e., the reasons for variation in retail tariffs across utilities in Mumbai. The following commercial aspects have been covered to examine the reasons for tariff variations:

a) Tariff, b) Average Cost of Supply , c) ARR components, d) Sales & Revenue mix ,and e) Cross-subsidy levels

Tariff In FY05-06, the tariffs (Average Billed Revenue)12 hovered in the range of Rs.2.49 per unit to Rs.3.23 per unit for domestic category. In FY 09-10, the tariffs increased to a range of Rs.4.17 per unit to Rs.5.24 per unit. The increase in tariff of domestic category for BEST, RInfra-D, and TPC-D was around 70%, 100%, and 30% respectively. Further in comparison with BEST and TPC-D the increase in tariffs of RInfra-D was on the higher side. The figure below shows the tariffs of the major categories of the three distribution licensees in FY 05-06 and in FY 09-10.

Figure 1: Tariffs13 (in FY 05-06 & FY09-10)

2.60

5.074.67

3.96 3.773.23

4.20 4.22 4.143.85

2.49

5.84 5.74

4.764.24

3.65

LT Domestic LT Non Domestic LT Industrial HT Commercial HT Industrial HT Housing

FY05-06

Rinfra TPC-D BEST

11 Tariffs here refer to Average Billed Revenue 12 Average Billed Revenue is defined as total revenue billed divided by total sales. 13 Tariff refers to ABR and does not include Fuel adjustment charges


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Source: Tariff orders and PwC Analysis

The table below shows the applicable energy charges and difference between highest and lowest energy charges for the three distribution licensees for FY 10-11.

Table 6: Applicable Energy Charges for FY10-11 for the three distribution licensees

Categories Sub-Categories RInfra-D (Rs./kWh)

TPC-D (Rs./kWh)

BEST (Rs./kWh)

Difference b/w highest

& lowest

LT Domestic Tariff

BPL 0.40 0.40 0.40 0

0-100 units 2.96 1.05 1.55 1.91

101-300 units 5.56 2.50 3.30 3.06

301-500 units 9.16 4.40 5.30 4.76

Above 500 units 10.61 5.30 6.80 5.31

LT Non Residential

0-20 kW 0-300 units 7.95 4.25 4.00 3.95

301-500 units 7.95 4.25 6.00 3.70

501-1000 units 7.95 4.25 6.90 3.70

above 1000 units 7.95 4.25 7.60 3.70

>20kW & <50kW

10.26 4.80 7.30 5.46

>50 kW 10.91 5.05 7.55 5.86

LT Industrial 0-20 kW 7.76 4.50

0-300 units 301- 500 units 501-1000 units Above 1000 units

3.70 5.50 5.95 6.40

>20-100kW 7.41 5.10 5.40 2.31

>100kW 7.41 5.10 5.30 2.31

LT Temporary Supply Religious

3.81 2.00 2.85 1.81

LT Temporary Supply Others

15.81 11.00 8.75 7.06

HT I – Industry 7.56 5.00 5.05 2.56

HT Commercial 8.41 5.20 5.35 3.21


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HT Railways 33/22/11/6.6kV - 4.95 - -

100kV - 4.80 - -

HT Group Housing

5.16 4.10 3.00 2.16

Source: Tariff orders

In view of the above variations, the task of making the tariffs uniform would entail bridging the difference in energy charges across the utilities.

Average Cost of Supply14 The table below shows the average cost of supply (ACoS) of BEST, RInfra-D and TPC-D from FY 04-05 to FY 09-10.

Figure 2: Historical Trend of ACoS15 of the Distribution Licensees in Mumbai

Source: Tariff Orders

The historical trend of ACoS of the three distribution licensees shows that the range in the difference between the ACoS of the three companies has widened from Rs.0.68 per unit in FY 2004-05 to Rs.1.50 per unit in FY2009-10. This difference between the ACoS of the three distribution licensees is one of the reasons for variation in tariffs.

Components of ARR The increase in ACoS needs to be analyzed with respect to the variations in various components of ARR. The table below depicts the trends for cost per unit of sales of various components of ARR.

Table 7: Analysis of ARR

14 ACoS computed by taking Trued up ARR and Trued up sales, Trued up ARR does not take cognizance of the amounts allowed by commission in the years after true up exercise 15 ACoS does not include past arrears

BEST

ARR Components FY 04-05 FY 05-06 FY 06-07 FY 07-08 FY 08-09 FY 09-10*

Power Purchase cost 3.08 3.09 3.67 4.64 5.48 4.17

Operation & Maintenance Cost 0.51 0.54 0.67 0.57 0.59 0.62


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Source: PwC Analysis

* Provisional Trued-up for TPC-D and BEST and Approved for RInfra-D

It is evident from the above that the increase in the power purchase cost of BEST and RInfra-D has been the main reason for increase of ACoS of these licensees over the years. It is also pertinent to mention that the O&M cost of TPC-D has also reduced over the years whereas the same has seen an increasing trend in BEST and RInfra-D.

In view of the above analysis, it is essential to analyze the trends of power purchase cost over the years for the three licensees.

Power Purchase Cost

The graph below shows a comparison of the contribution of power purchase cost to the ARR over the years.

Figure 3: Power Purchase percentage in Net ARR for FY04-05 and FY08-09


Interest & Finance Charges 0.18 0.22 0.05 0.06 0.11 0.11

Others -0.11 -0.08 0.39 1.09 0.71 0.80

Total 3.67 3.76 4.77 6.36 6.89 5.70

RInfra-D





Others 0.68 0.66 0.51 0.54 0.47 0.47

Total 3.48 3.68 4.19 5.43 7.24 6.37

TPC-D





Others 0.49 0.39 0.2 0.89 0.66 0.61

Total 2.82 3.18 3.29 5.69 5.53 4.87


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On a detailed analysis of the power purchase cost of the three licensees, it is observed that there is a sharp increase from FY 07-08 onwards, especially for BEST and RInfra-D with the latter observing the highest increase from 65% to 83%.

To ascertain the reasons for the increase in power purchase cost, the source-wise power purchase cost of the three licensees has been analyzed below.

BEST: In case of BEST, the bulk of power is purchased from TPC-G. The increase in the rates of TPC-G has been the reason for escalation in power purchase cost in both FY 07-08 and FY 08-09. With the signing of PPA between TPC-G and BEST, BEST has reduced its reliance on short-term source of power, which in turn has kept under check its average cost of power purchase.

Table 8: BEST Power Purchase Quantity, Source-wise % and per unit Power Purchase Cost

Power Purchase from various sources (MU’s)

Power Purchase Sources FY 06-07 FY 07-08 FY 08-09 FY 09-10

Source Trued Up Trued Up Trued Up Prov. True Up

TPC - G (Thermal+Hydel) 4147.62 4086.28 4399.30 4386.02

Unit 8 TPC-G 0.00 374.15 635.05

Pool Purchase/banking 255.54 -151.69 -706.30

RPS 3.67 43.58 185.82

Short –Term 282.09 400.77 89.00 265.99

Outside Licensee Sale -49.88 -137.88

Total 4379.83 4608.38 4754.34 4766.58

Percentage wise Power Purchased from various sources

TPC - G (Thermal+Hydel) 94.70% 88.70% 92.50% 92.00%

Unit 8 TPC-G - 7.90% 13.30%

Pool Purchase/banking 5.50% -3.20% -14.80%

RPS 0.10% 0.90% 3.90%

Short-term 6.40% 8.70% 1.90% 5.60%

Outside Licensee Sale -3.00%

Total 100.00% 100.00% 100.00% 100.00%

Power Purchase Cost per unit (Rs./unit)

TPC - G (Thermal+Hydel) 2.84 3.70 4.43 4.04

Unit 8 TPC-G 8.51 2.77

Pool Purchase/banking 7.35 (3.97) (6.82)

RPS 10.00 4.56 5.18

Short-term 6.39 5.36 7.01 6.08

Outside Licensee sale (3.29)

Average Power Purchased Cost 3.04 4.06 4.82 3.62

Source: Tariff order

RInfra-D: In FY 07-08, around 52% of power was procured from TPC-G and 5.06% was procured from external sources. Whereas, in FY 09-10 around 28% of power was procured from TPC-G and 21% was procured from external sources. The power from the external sources was purchased at Rs. 6.90/unit. This costly power from external sources led to increase in the average power purchase cost and in turn higher ACoS.

Table 9: RInfra-D Power Purchase Quantity, Source-wise % and per unit Power Purchase Cost



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Source Trued Up Trued Up Prov. Trued Up

Actual (Pet. of

RInfra-D )

Approved Actual (Pet. of

RInfra-D )

RInfra-G 4118.00 4089.09 3943.29 4025.00 3915.24 4085.00

TPC-G 4474.00 4747.76 2844.59 2836.00 2941.98 2712.00

Outside License area sale -23.00 -177.32 0.00

External Purchase/Bilateral sale

- 465.75 1919.87 1718.00 2719.51 2052.00

RPS 2.24 63.76 22.00 611.28 146.00

Other/ Pool purchase 93.00 80.05 742.06 1075.00 712.00

Total 8662.00 9207.57 9513.57 9676.00 10188.01

9707.00


RInfra-G 47.54% 44.41% 41.45% 41.60% 38.43% 42.08%

TPC-G 51.65% 51.56% 29.90% 29.31% 28.88% 27.94%

Outside License area sale -1.93%


0.00% 5.06% 20.18% 17.76% 26.69% 21.14%

RPS 0.02% 0.67% 0.23% 6.00% 1.50%

Other/ Pool purchase 1.07% 0.87% 7.80% 11.11% 0.00% 7.33%

Total 100% 100% 100% 100% 100% 100%

Power Purchase Cost per unit16 (Rs/unit)

RInfra-G 2.01 2.13 2.45 2.48 2.47 2.42

TPC-G 2.87 3.99 4.83 4.79 3.71 3.76

Outside License area sale 2.51


- 5.49 8.77 8.75 7.00 6.90

RPS - 3.48 3.50 3.5 3.65 3.75

Other/ Pool purchase 7.03 0.00 9.45 8.93 0.00 6.53

Average Power Purchased Cost

2.51 3.23 4.99 4.99 4.11 4.06

Source: RInfra-D Tariff Order and Petitions

TPC-D: TPC-D procures majority of its power from TPC-G. In case of TPC-D, the short-term power procurement as per provisional True up was 4% of total power purchase (MU), the same as per FY08-09 True up was 10%. This short-term power has been procured at a rate which is around 1.76 times higher than TPC-G rate.

Table 10: TPC-D Power Purchase Quantity, Source wise % and per unit Power Purchase Cost



Source Trued Up Trued Up Trued Up Provisional True Up

TPC-G: Existing Units 849.62 2245.9 2844.12 2932.39

Short-term 218.65 257.08 119.82

Pool Purchase/(Sale) 173.25 (543.52) (182.89)

RPS Obligation 30.52 125.08 133.36 87.12

Outside License Area sale and Banking Return (76.05) (90.34) (28.43)

Total 880.14 2686.83 2600.70 2928.01


TPC-G: Existing Units 97% 84% 109% 100%

16 Power Purchase per unit does not include standby, Transmission and SLDC charges


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Short-term - 8% 10% 4%

Pool Purchase/(Sale) - 6% (21%) -6%

RPS Obligation 3% 5% 5% 3%

Outside License Area sale and Banking Return (3%) (3%) -1%

Total 100% 100% 100% 100%

Power Purchase Cost per unit (Rs./Unit)

TPC-G: Existing Units 6.31 3.73 4.70 3.82

Short-term 5.13 8.24 4.71

Pool Purchase/Sale 7.94 8.44 5.06

RPS Obligation 3.37 3.53 3.65 3.75

Outside License Area sale and Banking Return -3.28 -4.27 -7.30

Average Power Purchased Cost 6.21 4.31 4.22 3.75

Source: Tariff order

It is evident from the above analysis that the sharp increase in power purchase cost has been observed for RInfra-D and BEST. The increase in power purchase cost of BEST is attributable to increase in TPC-G rates, whereas the increase in RInfra-D is attributable to short-term purchase quantity and rate.

The above is substantiated by analysing the power purchase quantity in different price bands as shown in the table below. Even though, RInfra-D has access 41.60% of power from RInfra-G, but the sourcing of 28.87% power from short-term sources at more than Rs.7/unit has led to the increase in per unit power purchase cost.

Table 11: Analysis of Power Purchase for FY 08-09 for and BEST and RInfra-D, TPC-D


Operation and Maintenance Cost

The per unit Operation and Maintenance Cost (O&M)of the three distribution licensees, indicates that the O&M charges for TPC-D have seen a reducing trend since FY 04-05 whereas the O&M cost for the other two licensees have seen an increase during the same period. In FY 09-1017, the O&M cost of RInfra-D was 73% higher than TPC-D and 5% higher than BEST. This variation in per unit of O&M cost also resulted in widening of the gap between ACoS of the three licensees, although the degree of impact is not as significant as that of power purchase cost.

Table 12: O&M cost per unit of sales

O&M Cost per unit of Sales FY 04-05 FY 05-06 FY 06-07 FY 07-08 FY 08-09 FY 09-10

BEST 0.51 0.54 0.67 0.57 0.59 0.62

RInfra-D 0.49 0.60 0.57 0.64 0.64 0.65

TPC-D 0.33 0.31 0.12 0.14 0.15 0.18

17 Based on provisional approved for FY 09-10 of TPC-D and BEST and approved of RInfra-D

Price Band BEST RInfra-D TPC-D

>=Rs.7/unit 9.7% 28.87% -11%

Rs.5/unit-Rs6/unit - - -

Rs.4/unit-Rs5/unit 93.40% 29.31% 106%

Rs.3/unit-Rs4/unit -3.20% 0.23% 5%

<=Rs.3/unit 41.60%


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Source: Tariff Orders and PwC Analysis

Sales and Revenue Mix The revenue and the sales mix of the licensees also needs to be analyzed considering that increase or decrease in sales and corresponding change in revenues play an essential role in tariff determination. The analysis of the movement in the sales and revenue mix of the three licensees is discussed below.

BEST: The graph below depicts the sales and revenue mix for BEST. It is evident that the proportion of domestic sales has remained constant while the share of commercial sales in the total sales has increased over the years. Meanwhile industrial sales have shown a downward trend during the same period. However, the revenue per unit has increased from Rs. 6.14 per unit in FY 08-09 to 6.55 per unit in FY 09-10.

Figure 4: Sales and Revenue Mix, BEST

Source: Tariff Orders, FY 09-10 is provisional true up, others are final true up figures.

RInfra-D: The graph below depicts the sales and revenue mix for RInfra-D. It is evident that industrial sales as a percentage of total sales18 of RInfra-D are showing a downward trend. From FY08-09 to FY 09-10, the revenue per unit of sale has come down from Rs. 6.50 per unit to Rs. 6.20 per unit19 , i.e., a decrease of 5% which can be attributable to the change in sales mix.

Figure 5: Sales and Revenue Mix, RInfra-D

Source: Tariff orders, FY 09-10 and FY 08-09 are actual numbers taken from Petition.

18 The categories such as advertisement, electric crematorium have been clubbed with the Commercial category for analysis 19 Actual number of revenue taken from petition of RInfra-D for FY 10-11


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TPC-D: The graph below depicts the sales and revenue mix for TPC-D. It is evident that the proportion of domestic and commercial sales in total sales has been almost constant over the years. The proportion of industrial sales in total sales and the proportion of revenue from industrial sales have increased over the years.

Figure 6: Sales and Revenue Mix, TPC-D

Source: Tariff Orders, FY 09-10 is provisional true up, others are final true up figures.

It is evident from the above analysis that there has been a decline in revenue per unit of RInfra-D due to change in the revenue mix. For BEST and TPC-D the change has been favourable which has resulted in increase in revenue per unit in the previous year.

Cross Subsidy Levels The following graphs show the cross-subsidy levels for various categories for the three licensees.

Figure 7: Cross Subsidy Levels of Mumbai Licensees for FY 09-1020


20 FY 09-10 approved


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As shown in the graph above, all the categories of TPC-D are in the band of +/-20% of ACoS, whereas tariffs for other two licensees are outside the band of +/-20% of ACoS.

The tariffs in FY05-06 were not uniform but varied within a reasonable band. However, from FY07-08 onwards, the variation in tariff of the three distribution licensees started increasing mainly on account of power purchase expenses and sales mix. The analysis above indicates that high cost of power purchased by RInfra-D has further widened the tariff variation among the licensees. It therefore, becomes essential to examine the option of implementing uniform retail tariffs in the three licensed areas of Mumbai. However, having uniform retail tariffs in a competitive scenario may go against the provisions of the Electricity Act, 2003. The next section brings out the legal and regulatory provisions on implementation of Uniform Retail Tariff.

Report on Scientific Study for implementing Uniform Tariff in Mumbai

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Section IV-Regulatory framework

The purpose of this section is to study the regulatory framework on the introduction and implementation of Uniform Retail Tariff in Mumbai. To this end, relevant provisions of EA-2003 various policies, regulations and directives in this regard have been studied.

Electricity Act, 2003 The Electricity Act was enacted in the year 2003 to consolidate laws relating to generation, transmission, distribution, trading and use of electricity; and generally for taking measures conducive for the development of electricity industry, promoting competition therein, protecting interest of consumers and supply of electricity to all areas, rationalisation of electricity tariff, ensuring transparent policies regarding subsidies, promotion of efficient and environmentally benign policies.

The Electricity Act also envisaged reforms in the power sector with the objectives to take measures conducive to the development and management of the electricity industry in an efficient, economic and competitive manner to provide reliable quality power and to protect the interest of the consumers.

Section 61, which prescribes guidelines for determination of tariff, states that

“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:-

(a) the principles and methodologies specified by the Central Commission for determination of the tariff applicable to generating companies and transmission licensees;

(b) the generation, transmission, distribution and supply of electricity are conducted on commercial principles;

(c) the factors which would encourage competition, efficiency, economical use of the resources, good performance and optimum investments;

(d) safeguarding of consumers' interest and at the same time, recovery of the cost of electricity in a reasonable manner;

(e) the principles rewarding efficiency in performance;

(f) multiyear tariff principles;

(g) that the tariff progressively reflects the cost of supply of electricity and also, reduces cross-subsidies within the period to be specified by the Appropriate Commission;

(h) the promotion of co-generation and generation of electricity from renewable sources of energy;

(i) the National Electricity Policy and Tariff Policy.”

Section 61(b) and (c) reemphasize on the need to run the distribution business on commercial principles and encourage competition, efficiency and economical use of resources- The concept of URT, if it were to be enacted would go against the basic spirit of fostering competition and improving the efficiencies of the sector.


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Section 61(g) provides that the tariff charged by a utility should progressively reflect the cost of supply of electricity and also reduce cross subsidies- This provision also renders the validity and appropriateness of implementing a uniform tariff for all utilities questionable especially since such uniform tariff may not necessarily be reflective of an accurate cost of supply for each of the licensee.

Section 62(1) (d) provides that the Appropriate Commission shall determine the tariff in accordance with provisions of this Act for retail sale of electricity. Provided that in case of distribution of electricity in the same area by two or more distribution licensees, the Appropriate Commission may, for promoting competition among distribution licensees, fix only maximum ceiling of tariff for retail sale of electricity- This provision provides for ceiling of tariffs among licensees, which may be set at uniform levels. However, the actual tariff charged would depend on the cost and revenue structure of the licensees.

National Tariff Policy In compliance with section 3 of the Electricity Act 2003, the Central Government notified the National Tariff Policy on 6th January 2006 as amended from time to time.

Again, it is imperative to understand the various clauses of the tariff policy and its implication on the feasibility of implementing Uniform tariffs.

The objectives of the tariff policy, as stated in clause 4, are enumerated below:

(a) To ensure availability of electricity to consumers at reasonable and competitive rates;

(b) To ensure financial viability of the sector and attract investments;

(c) To promote transparency, consistency and predictability in regulatory approaches across jurisdictions and minimise perceptions of regulatory risks;

(d) To promote competition, efficiency in operations and improvement in quality of supply.

As per clause 5 of the policy “Introducing competition in different segments of the electricity industry is one of the key features of the Electricity Act, 2003. Competition will lead to significant benefits to consumers through reduction in capital costs and bring about efficiency of operations. It will also facilitate the price to be determined competitively….”

As per clause 8 of the policy “Making the distribution segment of the industry efficient and solvent is the key to success of power sector reforms and provision of services of specified standards. Therefore, the Regulatory Commissions need to strike the right balance between the requirements of the commercial viability of distribution licensees and consumer interests. Loss making utilities need to be transformed into profitable ventures which can raise necessary resources from the capital markets to provide services of international standards to enable India to achieve its full growth potential. Efficiency in operations should be encouraged. Gains of efficient operations with reference to normative parameters should be appropriately shared between consumers and licensees.”

Clause 8.3(2) of the tariff policy states that “For achieving the objective that the tariff progressively reflects the cost of supply of electricity, the SERC would notify roadmap within six months with a target that latest by the end of year 2010-2011 tariffs are within ± 20 % of the ACoS.”

It is evident that the policy objectives and provisions do not provide flexibility for implementation of Uniform Tariffs.

Meanwhile, the tariff policy provides mechanism to maintain stability in tariffs through efficiency improvements and cost effectiveness, as stated below

Clause 8.1(1) states that “Implementation of Multi Year Tariff (MYT) framework would minimise risks for utilities and consumers, promote efficiency and appropriate reduction of system losses and attract


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investments and would also bring greater predictability to consumer tariffs on the whole by restricting tariff adjustments to known indicators on power purchase prices and inflation indices. The framework should be applied for both public and private utilities.”

Clause 8.1(4) states that “Licensees may have the flexibility of charging lower tariffs than approved by the State Commission if competitive conditions require so without having a claim on additional revenue requirement on this account in accordance with Section 62 of the Act.”

Clause 8.4(2) states that “…PPA needs to be assigned to the successor distribution companies. The State Govt. may make such assignments taking care of different load profiles of the distribution companies so that retail tariffs are uniform in the State for different categories of consumers. Thereafter, the retail tariffs would reflect the relative efficiency of distribution companies in procuring power at competitive costs, controlling theft and reducing other distribution losses.”

Clause 8.3 states that “The State Governments can give subsidy to the extent they consider appropriate as per the provisions of section 65 of the Act. Direct subsidy is a better way to support the poorer categories of consumers than the mechanism of cross-subsidizing the tariff across the board. Subsidies should be targeted effectively and in transparent manner. As a substitute of cross-subsidies, the State Government has the option of raising resources through mechanism of electricity duty and giving direct subsidies to only needy consumers. This is a better way of targeting subsidies effectively.”

It is clear from the above clauses that the uniformity in tariffs can only be attained through efficiency measures and government interventions to an extent. However, Government interventions need to be restricted to interim support as subsequently efficiency and cost competitiveness of the utilities need to take over.

In view of the above discussion, it can be concluded that the regulatory framework within which the business of generation, transmission and distribution of electricity operates, does not provide flexibility for the introduction or implementation of uniformity in the retail tariff charged by licensees.

However, in the absence of principles for implementation/introduction of URT, alternative methods of tariff uniformity maybe explored. There are various mechanisms of implementing tariff uniformity through tariff equalization which can be evaluated to ascertain its feasibility for implementing in Mumbai, as discussed in the subsequent section.


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Section V- Feasibility analysis for implementation of Uniform Tariffs across utilities

This section draws on national and international experience to outline the various mechanisms that can be adopted for implementation of Uniform Retail Tariff. It discusses the inherent advantages and disadvantages of each meachanism and also examines the feasibility of adopting the mechanisms for implementation of Uniform Retail Tariff in Mumbai.

Tariff Equalisation Mechanisms In a regulated electricity market, Uniform Retail Tariff would naturally come about when the cost and revenue structure of each distribution licensee is identical. Differential tariffs are thus a result of variation in cost and revenue structure across licensees. Various tariff equalisation mechanisms have been designed by regulators and governments across the world that enable Uniform Retail Tariff; one method being transferring the costs incurred by a licensee with an unfavourable cost and revenue structure on to other licensees and second being providing additional revenue by other methods to such a licensee. The following tariff equalisation mechanisms have been discussed in this report:

A. Differential Bulk Supply Tariff/Allocation of Low Cost Power, B. Differential Transmission Charges, C. Geographical Boundary Redefinition, D. Inter Utility Transfers, and E. Government Support

Differential Bulk Supply Tariff/Allocation of Low Cost Power Differential Bulk Supply tariff (DBST) refers to a model of electricity supply known as Single Buyer Model where in there exists one buyer or company which buys electricity from different generators as per the power purchase agreement. The buyer then allocates the electricity among different distribution utilities. The bulk supplier can charge Uniform Bulk Supply Tariffs or Differential Bulk Tariff (DBST) from the utilities but the reason for its existence is mainly because the bulk supplier differentiates between the buyers or distribution utilities and levies differential bulk supply tariff on them. The differentiation is mainly on account of varied sales and consumer mix, i.e., the buyer/ distribution utility with less revenue generating consumer mix would be charged the lower bulk supply tariff as compared to the DBST charged to the buyer having favourable consumer mix.

Merits

DBST takes care, via power purchase allocation, of different load profiles of the distribution companies so that retail tariffs are uniform in the state for different categories of consumers. National tariff policy section 8.4 specifies the same.

DBST enables implementation of Uniform Retail Tariff without any subsidy or government intervention in the sector.

Demerits

DBST impacts allocative efficiency, i.e., it distorts investment decisions. If the licensee realizes that its efficiency would not be rewarded and indeed it would be penalized by way of costly power purchase rate, the licensee would not have any incentive to undertake efficiency enhancing investment.

Creating and maintaining differential power purchase costs for licensees would not create a level playing field between the different licensees, which may be essential in an environment where there


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is consumer choice and therefore competition. Level playing field is essential when the licensees may have to compete in the open access market with each other.

Case Study – Differential Bulk Supply Tariff in Delhi

The Govt. of NCT of Delhi notified certain Policy Directions in November 2001 to enable restructuring of the erstwhile Delhi

Vidyut Board (DVB) and privatization of the electricity distribution business. Post restructuring, DVB was unbundled into

two generation companies, i.e., Indraprastha Power Generation Company Limited (IPGCL) and Pragati Power Corporation

Limited (PPCL), one transmission company, i.e., Delhi Transco Limited (DTL) and 4 distribution companies viz. i.e., BSES

Rajdhani Power Limited (BRPL), BSES Yamuna Power Limited (BYPL), North Delhi Power Limited (NDPL) and New Delhi

Municipal Council (NDMC).

The policy directions also mandated that the retail tariffs for distribution licensees shall be identical till the end of FY 06-07.

To facilitate this, the Bulk Supply Tariff for each DISCOM was to be determined on the basis of its paying capacity. Thus, the

policy directions issued for restructuring also served as the framework for determination of Differential Bulk Supply Tariff

(DBST).

Upto FY 06-07, DTL was responsible for the purchase of power from the various sources. The DISCOMs were required to

pay to DTL for the power purchase cost as per the Differential Bulk Supply Tariff (BST) notified by DERC. The DBST was

determined by DERC on the basis of the paying capacity of each DISCOM. The paying capacity (i.e., amount available for

power purchase) was computed by projecting the DISCOM‟s expected revenue(s) and deducting from it the DISCOM‟s

revenue requirement excluding power purchase cost. The shortfall in revenues of DTL on this account was met by the

GoNCTD from the support planned as per the Policy Directions. The GoNCTD had initially committed an amount of Rs.

3450 Crs as transitional support to DTL, which was later supplemented by a direct subsidy to the DISCOMs.

After the end of the Policy Direction period (02-07), all existing and upcoming power purchase agreements (PPAs) were

assigned to the DISCOMs vide the Commission‟s order and the responsibility for power purchase in Delhi was transferred to

the distribution companies. However, 15% of the capacity of NCR Dadri TPS, IPGCL and PPCL was treated as unallocated

and was to be provided to the DISCOM facing higher costs to lend a measure of equalisation to the costs incurred by

different licensees.

There is however, no policy currently in place that requires Uniform Retail Tariffs to be maintained in Delhi. The DERC has

been able to maintain equal tariffs in Delhi in recent years primarily because each revenue surplus has been approved for

each of the DISCOM.

The Detailed Case study of Delhi is given in „Annexure II‟ of this report.

Feasibility of Implementing URT through Differential Bulk Supply Tariff in Mumbai Power is supplied to the licensees in Mumbai by two major sources – TPC-G and RInfra-G which have a generation capacity of 2027 MW and 500 MW respectively. This power is used by the licensees in the following proportion:

RInfra-G and RInfra-D have entered into a long term PPA for 500MW of generation capacity. RInfra also utilised 358 MW of generation capacity of TPC-G in first half of FY 2010-11.21

TPC-G and BEST have entered into a long term PPA for 900 MW of generation capacity including 100 MW share in the newly commissioned Unit 8 of TPC-G22. Also, BEST has accepted the offer of additional allocation of 100 MW from existing stations of TPC-G starting from April 1, 2010.

TPC-G and TPC-D have entered into a long term PPA for 527 MW of generation capacity. An additional 160 MW of capacity has been made available by TPC-G to TPC-D for FY2010-1123.

The remaining capacity of TPC-G is tied up with Tata Power Trading Company Limited (TPTCL)

21 As per submission made by RInfra-D for preparation of this report 22After the Commissioning of Unit-8, Unit-4 would be available only as contingency unit. Therefore, net capacity available for BEST is 832.5 MW. 23 As per MERC Order for TPC-D for APR of FY 09-10 and Tariff for FY 2010-11in Case No. 98 of 2009


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All the above power purchase agreements (excluding agreement between TPC-G and TPCTL) have been approved by the MERC. The allocation of TPC-G generation capacity amongst the three licensees had been disputed by RInfra-D. The issue of share of RInfra-D in TPC-G generation capacity has, however, attained finality with the May 6, 2009 order of the Hon‟ble Supreme Court, which upheld the Order of the Commission regarding approval of the Power Purchase Agreement between TPC-G and BEST. The summary of the Judgment of the Hon‟ble Supreme Court in this regard is as under:

1. “Activities of a generating company are beyond the purview of the licensing provisions.

2. The Parliament therefore did not think it necessary to provide for any regulation or issuance of directions except that which have expressly been stated in the Act.

3. Section 21 occurs in the chapter of “licensing” under which the generating companies would not be governed.

4. As almost all the sections preceding Section 23 as also Section 24 talk about licensee and licensee alone, the word “supply” if given its statutorily defined meaning as contained in Section 2(70) of the Act would lead to an anomalous situation as by reason thereof supply of electrical energy by the generating company to the consumers directly in terms of Section 12(2) of the Act as also by the transmission companies to the consumers would also come within its purview.

5. In a case of this nature the principle of exclusion of the definition of Section by resorting to “unless the context otherwise requires” should be resorted to.

6. Section 86(1)(a) of the 2003 Act clearly shows the parameters of supply for the purpose of Regulation, viz. supply of electricity by the distribution company to the consumer.

7. If regulatory clause is sought to be applied in relation to allocation of power, the same would defeat the de-licensing provisions. Generating companies have the freedom to enter into contract and in particular long term contracts with a distribution company subject to the regulatory provisions contained in the 2003 Act.

8. PPA for a long term is essential for increasing and decreasing the capacity of generation of electricity by the generating company, which purpose by the 2003 Act must be allowed to be achieved.

9. Duration of the contract in regard to supply of electricity by and between TPC (G) and RInfra prior to coming into force of the contract is of no consequence, particularly when no written long term or short-term contract had been entered into by and between them.

10. Fairness or otherwise of the supply of electricity to different distribution companies being outside the jurisdiction of the Commission, the same by itself cannot be a ground for bringing back the license raj, which is not contemplated by the Act.

11. For true and correct construction of the Act, the principle of harmonious construction is required to be resorted to.

12. Recourse to the principle of purposive construction does not militate against the conclusion reached by us and as indicated hereinbefore in fact in terms of the said doctrine the purpose and object of the Parliament must prevail over a narrow and/or literal interpretation, which would defeat the purpose and object of the Act.”

However, given the existing power purchase agreements between the generation companies and the distribution licensees and in light of the Hon‟ble Supreme Court‟s decision regarding the same, there is no room for creation of single purchaser of power or for re-allocation of generation capacity in Mumbai. Thus, there is no visible scope for implementation of URT using DBST as a tariff equalisation mechanism in Mumbai.


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Differential Transmission Charges Apart from DBST, another mechanism by which costs can be equalised across licensees is through levy of differential transmission charges. The transmission charges paid by a distribution licensee in such a case are not reflective of the actual cost of utilisation of the transmission system but are rather adjusted to bring about a measure of equalisation in the overall costs faced by the licensees.

Merits

This mechanism allows Uniform Retail Tariff to be implemented without any direct support by the government.

The discount given to the different distribution licensees by the transmission licensee may be specified by a predetermined formula eliminating the need for excessive intervention by the government or the regulator in the sector.

Demerits

If the transmission charges are paid on the ability to pay basis the transmission licensee bears the financial risk of under-recovery.

The mechanism gives the licensees an incentive to exaggerate cost forecasts.

Feasibility of Imlementing URT through Differential Transmission Charges in Mumbai The total cost of the transmission system is shared amongst the distribution licensees is in the ratio of their share in coincident peak demand as shown below:

Table 13: Share of Costs of the Transmission System in FY 09-10

Distribution Licensees

Total (Rs Cr)

% Share

MSEDCL 1425 82%

TPC-D 47 3%

RInfra-D 176 10%

BEST 87 5%

Source: MERC Order in Case No 155 of 2008

In FY 09-10, RInfra-D paid Rs 176 Cr as transmission charges for its utilization of the transmission system. Even if the basis of allocation of transmission charges is altered to enable cross-subsidy from other licensees to RInfra-D, the maximum feasible support to RInfra-D would only be Rs 176 Cr. Given the category-wise sales, revenues and tariffs for FY 09-10, implementing URT for only LT Residential consumption less than 100 units, who consume less than 100 units in a month, at a level equal to the tariff applicable in the BEST area (Rs 1.80/unit) causes a revenue loss of Rs 330 Cr to RInfra-D.

Thus, differential transmission charges alone cannot generate sufficient amount of cross-subsidy to enable implementation of URT in Mumbai.

Geographical Boundary Redefinition An equalisation in tariffs can also be achieved by redrawing of geographical boundaries. Boundaries could be redrawn to allow high cost distribution companies to supply some „low cost‟ customers, and vice versa, thus reducing each company‟s average cost of distribution.

Merits

Such a mechanism allows URT to be maintained without the need for any sustained intervention by the regulator/government in distribution of electricity.


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Demerits

The process for implementing such a measure is complicated and difficult to administer.

Feasibility of Imlementing URT through Geographical Boundary Redefinition in Mumbai This could be another appropriate mechanism to control/rationalize tariffs in the high tariff areas and allow for uniformity in tariffs across Mumbai. However, this mechanism may still require a support function of another mechanism / support to ensure uniformity across all the three licensees.

Prima facie it appears that Geographical Boundary Redefinition cannot be implemented in light of the minimum area requirement as minimum area required for such a case would be a municipal council / municipal corporation or revenue district. Thus this cannot be a solution as of now.

Inter Utility Transfers An effective mechanism for implementation of Uniform Retail Tariff is a direct transfer of resources to the licensee who faces an unfavourable cost/revenue structure from other licensees who enjoy a more favourable cost/revenue structure.

The retail tariff under this mechanism is set at a level such that the aggregate revenue of all the licensees operating in the area is greater than or equal to the aggregate costs of all the licensees. At such a tariff, certain licensees operating in the area would be made to charge a tariff higher than the tariff required to be charged by them (“the financing licensee”) and other licensees would charge a tariff lower than the tariff required to be charged by them (“the financed licensee”). The additional revenue collected by the “financing licensee” is transferred to the “the financed licensee” to compensate the latter for the shortfall in revenue earned by it. Such a transfer may take place via a uniform tariff fund wherein the “financing licensee” makes payments into the fund as per a predetermined formula and the “financed licensee” draws the required additional revenue from the fund. Alternatively, there may be a direct transfer of the additional revenue collected by the “financing licensee” to the “financed licensee”.

Merits

Creation of a uniform tariff fund enables implementation of Uniform Retail Tariff without any support or

government intervention in the sector.

Unlike the other mechanisms discussed above an inter-utility transfer does not create any distortions in the generation and transmission space and all the transactions are limited to the distribution licensees.

URT under this mechanism may be implemented in the form of an additional surcharge payable by the consumers of the “financing licensee”. The additional surcharge is such that the total tariff payable by the consumers of the “financing licensee” is equal to the tariff of the “financed licensee” for any particular consumer category. Implemented in such a manner, inter-utility transfers is an easy to administer and transparent mechanism.

Demerits

The mechanism provides the licensees an incentive to exaggerate cost forecasts to ensure higher payments from the fund.

Transfer of resources from the utility with lower costs to the utility with higher costs may act as a disincentive for competition and efficiency.

The gains from efficiency achieved by the “financing licensee” are not passed on to the consumers.

Inter-utility transfers have been used in several countries – Australia, Spain, Italy, Republic of Vanuatu etc– for implemantation of Uniform Retail Tariff. The mechanism of implementation of URT in the state of Western Australia, Australia is discussed below in detail as an example.


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Case Study – Uniform Retail Tariff in Western Australia The Electricity Market

Distribution of electricity in state of Western Australia, Australia, is carried out though two main systems: South West and the smaller North West Interconnected System. The South West Interconnected System (“SWIS”) is connected to over 840,000 retail customers while the North West Interconnected System (“NWIS”) focuses on regional customers that are outside the SWIS. Historically, Western Australia‟s electricity industry was dominated by a single utility under government ownership much like the state electricity boards operating in India. In 2003, the Government launched a series of reforms; one of which was the disaggregation of the state electricity utility which led to the creation of four independent, government owned electricity utilities:

Synergy: responsible for the sale of electricity within the South West Interconnected System (SWIS);

Horizon Power: the regional business responsible for the generation, transport and sale of electricity in areas outside of the SWIS;

Verve Energy: responsible for power generation within the SWIS; and

Western Power: responsible for operating, maintaining and expanding the electrical transmission and distribution network in the SWIS.

Synergy and Horizon Power are also currently the major suppliers of electricity to the residential and commercial consumers in Western Australia. The Regulator

The Economic Regulation Authority (ERA) is the independent economic regulator for Australia. The ERA licenses providers of gas, electricity and water services and monitors compliance with licensing conditions. It also assesses the terms and conditions offered by the electricity utilities to its consumers and approve the prices charged by the owners of the transmission system. The retail tariff of electricity is, however, determined directly by the Government of Western Australia. Uniform Retail Tariff and the The Tariff Equalisation Fund (TEF)

The Government's uniform tariff policy applies to all residential and small business electricity customers supplied by Synergy (South West Interconnected System consumers) and Horizon Power (Regional consumers). The electricity tariffs for consumers of Horizon Power, in regional Western Australia, are at a level similar to the tariffs applicable in the SWIS. However, the cost of providing power in these remote systems is considerably higher than the revenue that can be collected from consumers paying the uniform tariff.

Uniform tariffs are maintained across Western Australia by inter-utility transfers via the Tariff Equalisation Fund. The tariff equalisation fund provides financial support to Horizon Power to cover the difference between:

the efficient cost of supply of electricity to consumers in areas outside of the SWIS; and

the revenue available to Horizon Power from supplying electricity to persons in areas outside of the SWIS at the uniform retail tariff.

The TEF is funded through Tariff Equalisation Contribution (TEC) payments made by Western Power to Horizon Power. The cost of these payments is funded by an additional charge collected by Western Power as part of the distribution network tariffs in the South West Interconnected System (i.e., tariffs in the SWIS are set at economic cost plus the TEC). Thus, the customers connected to the distribution system in the South West Interconnected System cross-subsidise customers outside of the South West Interconnected System customers to ensure Uniform Retail Tariff across Western Australia.

http://www.synergy.net.au/

http://www.horizonpower.com.au/

http://www.verveenergy.com.au/

http://www.westernpower.com.au/


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Feasibility of Implementing URT through Inter-Utility Transfers in Mumbai In this section the impact of implementation of Uniform Retail Tariff on the licensees in Mumbai has been simulated using the cost, revenue, tariff and sales data for FY 2009-1024. The simulation exercise has been used to examine the feasibility of using inter-utility transfers as a tariff equalisation mechanism in Mumbai.

Approach and Methodology

Application of principle of Uniform Retail Tariff to a particular area may involve:

equalisation of energy charges applicable to consumers of a particular category across licensees

equalisation of energy and fixed charges applicable to consumers of a particular category across

licensees

equalisation of average revenue from any particular consumer category across licensees

For the purpose of the simulation exercise carried out in this section, application of URT implies equalisation of energy charges applicable to consumers of a particular category across licensees.

For each licensee, the impact of implementation of Uniform Retail Tariff has been simulated by applying the selected Uniform Retail Tariff and re-estimating the revenue and revenue gap for FY 09-10.

The re-estimated revenue gap is compared with the actual/approved revenue gap of the licensee for FY 09-10 to assess the impact of URT on the licensees.

Application of URT will result in additional surplus / gap being generated for licensees depending on the tariff chosen as the Uniform Retail Tariff. The additional surplus / gap generated in BEST , RInfra-D, and TPC-D has been simulated under the following scenarios:

Energy Charges applicable in the BEST area for FY 09-10 considered as the URT

Energy Charges applicable in the RInfra-D area for FY 09-10 considered as the URT

Average Cost of all licensees in Mumbai considered as the average URT

Inter-utility transfers can be feasible tariff equalisation mechanism in Mumbai only if, at the selected URT the surplus generated in one licensee can be used to cover the deficit that is generated in the other licensee.

Data used for the study

The following data has been used to carry out the simulation exercise:

The ARR cost and revenues for TPC-D and BEST for FY 09-10, as approved in the APR order of FY 09-10 for TPC-D and BEST respectively. The actual category-wise sales, revenues and number of consumers for FY 09-10 have been considered on the basis of submissions made by the licensees.

For RInfra-D, the projected costs, ARR, total revenue, and category-wise sales, revenues and number of consumers and tariffs for FY 09-10, as approved by the Commission in the APR order for FY 2008-09, have been used.

The table below contains a snapshot of the energy charges25 applicable for the three licensees in Mumbai in FY 09-10

Table 14: Energy Charges for BEST, RInfra-D and TPC-D for FY 09-10

Energy Charges (Rs/kWh) RInfra-D TPC-D BEST

LT –Residential (BPL) 0.40 0.40 0.40

LT –Residential 0-100 units 2.96 1.30 1.80



LT –Residential Above 500 units 10.61 4.90 7.90

LT –Commercial (0-20 kW) 7.95 3.85 6.60*

24 While actual data for first 6 months of FY 2010-11 was available, the data has not been used as it is subject to prudence check by the Commission. 25 The analysis has been carried out purely on energy charges as the information on connected load category-wise and slab-wise was not available for computation of revenue from demand charges


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LT –Commercial (>20 and ≤50 kW) 10.26 4.30 8.90

LT –Commercial (>50 kW) 10.91 4.65 9.80

LT-Industry (0-20 kW) 7.76 4.10 6.01*

LT-Industry (>20 kW) 7.41 4.60 7.10*

LT-Advertisements and Hoarding 17.66 13.55 12.92

LT-Street Lights 8.31 4.00 6.09

LT Temporary Supply 15.81 11.00 10.59

HT-Housing 5.16 3.80 3.61

HT-Commercial 8.41 4.35 6.36

HT-Industry 7.56 4.10 5.81

HT Temporary Supply 11.00 9.00 9.00

Source: MERC Tariff Orders; *Average Tariff

It is clear from the above table that the tariffs applicable for the same category of consumers vary widely across licensees in Mumbai. In FY 09-10, the maximum tariff (per unit) payable by a residential or commercial customer in RInfra-D area (Rs 10.61) was more than double the maximum tariff payable by a residential or a commercial consumer in the TPC-D area (Rs 4.90). The industrial tariff applicable in the suburbs (RInfra-D area) was also more than one and a half times the industrial tariff in the city (TPC-D area). In spite of the high tariffs approved by the Commission for the RInfra-D area for FY 09-10, there existed an approved revenue gap of Rs 555 Cr, as is depicted in the table below:

Table 15: ARR and Revenue Surplus/ (Gap) of the licensees in Mumbai for FY 09-10

Description RInfra-D26 TPC-D# BEST# Total

Expenses

Power Purchase cost 4602 1209 1917 7727

Employee cost 307 22 152 481

Administration & General Expenses

112 19 76 207

Repair & maintenance Expense

148 8 27 183

Depreciation, including AAD 76 17 47 141

Interest Charges 136 28 46 209

Others 47 48 60 518

Return on Equity 177 23 104 304

Truing Up for Previous Years 1161 549 1348

Other Revenue 88 33 82 204

ARR 6677 1342 2897 10915

Revenue from Sale of Power 6122 1357 2911 10390

Surplus/(Gap) (555) 16 14 (525)

Sales 8676 2755 4121 15552

Average CoS 7.70 4.87 7.03 7.02

Average Tariff 7.06 4.93 7.06 6.68


#Approved after provisional True-Up in APR Order of FY 09-10

Limitation of the Simulations

The impact of implementation of URT on the licensees in Mumbai has been simulated under different scenarios using the above data on costs and tariffs and the data for category-wise sales for FY 09-10. The simulations, constructed using the FY 09-10 data have been used to estimate the amount of inter utility transfers or Govt. Support that will be required for implementation of URT in Mumbai. However, the actual amount of transfers or govt. support will depend on the actual cost and revenues of the various licensees for the year in which URT is implemented.

26 Approved in APR Order of FY 2008-09


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It may also be noted that the amount of government support or inter utility transfers required has been estimated only taking into account the estimated increase or decrease in revenue gap/surplus of the different licensees on implementation of URT. No treatment has been envisaged for the existing gap/surplus of the licensees that may exist for the year prior to which URT is implemented and will also affect the quantity of inter utility transfers or Govt. Support.

Scenario 1: Energy Charges applicable in BEST area for FY 09-10 considered as URT

This scenario has been built considering the energy charges approved for BEST license area as the URT for all licensees in Mumbai. Since BEST tariffs are higher than TPC-D tariffs and are lower than the RInfra-D tariffs, it is expected that additional revenue will be generated in TPC-D which may be used to cross subsidise the consumers of RInfra-D. The table below shows the results of the simulation under Scenario 1 for each cumulative inclusion of consumer category.

Table 16: Simulated Cumulative (Gap)/Surplus under Scenario 1: Energy Charges applicable in BEST area for FY 09-10 considered as URT

Uniform Tariff applied up till…

RInfra-D (Rs Cr)

TPC-D (Rs Cr)

BEST (Rs Cr)

Total (Rs Cr)

Base Case (555) 15.59 14 (525)

LT –Residential 0-100 units (825) 16.34 14 (795)

LT –Residential 101-300 units (1,103) 19 14 (1,070)


LT –Residential Above 500 units

(1,311) 34 14 (1,263)

LT –Commercial (1,607) 171 14 (1,422)

LT-Industry (1,653) 222 14 (1,416)

All LT Consumers (1,729) 222 14 (1,493)

HT-Housing (1,734) 222 14 (1,498)

HT-Commercial (1,833) 327 14 (1,491)

All HT &LT Consumers (1,913) 465 14 (1,433)


For FY 09-10, MERC had approved a revenue gap of Rs 555 Cr for RInfra-D and surplus of Rs 16 Cr and Rs 14 Cr for TPC-D and BEST respectively, as shown in Table 15. In the table above, the revenue gap/surplus of the licensees in this base case is compared with the gap/surplus of the licensees under Scenario 1 to determine the impact of implementation of URT on the licensees.

Table 16 above depicts the impact, on the licensees, of implementing URT for different category of consumers starting with the LT Residential (0-100 units) category. Equalising and setting the tariffs for the LT Residential (0-100 units) category equal to the tariff applicable in the BEST area (Rs 1.80/unit) causes the gap of RInfra-D to increase by Rs 270 Cr (to Rs 825 Cr from Rs 555 Cr). However, the surplus of TPC-D increases by only Rs 0.75 Cr (from Rs 15.59 Cr to Rs 16.34 Cr). The surplus of BEST obviously remains unchanged.

If URT is implemented for both LT Residential (0-100 units) category and LT Residential (101-300 units) category, the revenue gap of R-Infra-D increases to Rs 1,103 Cr and the surplus of TPC-D increases to Rs 19 Cr. Table 16 also depicts the impact on the licensees when the tariffs for all the LT-Residential consumers of all three licensees are set equal to the BEST tariff for FY 09-10. While the revenue gap of RInfra-D increases by Rs 757 Cr (to Rs 1311 Cr), the surplus of TPC-D increases only by Rs 19 Cr (to Rs 34 Cr).

Also, as per the simulation, if BEST tariffs are applied to all consumer categories across all three licensees the revenue gap of RInfra-D increases by Rs 1358 Cr while the surplus of TPC-D increases to Rs 449 Cr.

The proportionately smaller increase in surplus of TPC-D as compared to the large increase in deficit of RInfra-D, especially when URT is only applied to the residential category, is due to the much lower sales of TPC-D as compared to RInfra-D, especially in the residential category. Given the cost structure and sales mix of the three licensees in FY 09-10, when BEST tariffs are considered as URT, for any category of consumers, the


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additional revenue surplus generated in TPC-D is insufficient to bridge the additional revenue gap generated in RInfra-D.

A tariff equalisation mechanism which involves transfer of funds from TPC-D to RInfra-D to compensate the latter for the revenue lost by it at the URT is not feasible. Uniform Retail Tariff may be implemented at BEST tariff for FY 09-10 through a combination of a cross-subsidy in the form of inter-utility transfers and a direct government support to the consumers. For example, as mentioned above, if URT is implemented for the LT Residential (0-100 units) category, at BEST tariff for FY 09-10, the gap of RInfra-D increases by Rs 270 Cr but the surplus of TPC-D increases by only Rs 0.75 Cr. Thus, implementation of URT at BEST tariffs would involve a government support of Rs 269.25 Cr to the consumers and inter-utility transfers of Rs 0.75 Cr from TPC-D to RInfra-D.

Similarly, government support of Rs 738 Cr to consumers and inter-utility transfers of Rs 19 Cr from TPC-D to RInfra-D would allow BEST tariffs to be maintained as URT for all consumers in the Residential category; and a government support of Rs 909 Cr to consumers and inter-utility transfers of Rs 449 Cr from TPC-D to RInfra-D would allow BEST tariffs to be maintained as URT for all HT and LT consumers in Mumbai.

It may, however, be noted that implementing URT at the BEST tariffs even using such a hybrid approach may not be feasible immediately as increasing the TPC-D tariffs immediately would lead to a tariff shock to consumers of TPC-D.

Scenario 2: Energy Charges applicable in RInfra-D area for FY 09-10 considered as URT

This scenario has been built considering the energy charges approved for RInfra-D area as the URT for all licensees in Mumbai. Since RInfra-D tariffs are higher than the TPC-D and BEST tariffs, it is expected that additional revenue will be generated for both the licensees at such a tariff. The table below contains the results of the simulation under Scenario 2 for each cumulative inclusion of consumer category.

Table 17: Simulated Cumulative (Gap)/Surplus under Scenario 2: Energy Charges applicable in RInfra-D area for FY 09-10 considered as URT

Uniform Tariff applied up till… RInfra-D (Rs Cr)

TPC-D (Rs Cr)

BEST (Rs Cr)

Total (Rs Cr)

Base Case (555) 16 14 (525)

LT –Residential 0-100 units (555) 18 93 (444)




(555) 58 332 (165)

LT –Commercial (555) 227 543 216

LT-Industry (555) 288 557 290

All LT Consumers (555) 291 581 317

HT-Housing (555) 291 586 322

HT-Commercial (555) 505 662 613

All HT &LT Consumers (555) 783 687 915


As seen in the Table 17 , if RInfra-D tariffs are considered for the URT for Mumbai the revenue surplus of TPC-D and BEST increases significantly. The URT at this tariff would result in the combined surplus of Rs 1470 Cr of TPC-D and BEST which can be utilised to bridge the gap of RInfra-D. Thus, URT is feasible at the level of RInfra-D tariffs. However, such a measure would lead to a steep increase in tariffs of both TPC-D and BEST consumers and would be detrimental to consumer interest.

Scenario 3: Equal Average Tariffs across all licensees

An inter-utility transfer of funds can serve as an effective tariff equalisation mechanism in the long-run, without any government support, only if the average tariff levied by each licensee is at least equal to the average cost of


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all the licensees considered together. This would be the minimum tariff at which such inter-utility transfers can be considered as a feasible tariff equalisation mechanism. Table 18 given below depicts such a scenario.

Table 18: Simulated Cumulative (Gap)/Surplus under Scenario 3: Equal Average Tariffs across all licensees

RInfra-D (Rs. Cr)

TPC-D (Rs Cr)

BEST (Rs Cr)

Total (Rs Cr)

ARR 6,677 1,342 2,897 10915

Surplus/(Gap) in the base case (555) 16 14 (525)

Re-Estimated Revenue

Surplus/(Gap)

(588) 592 (5) 0

Average CoS (Existing, FY 09-10) 7.70 4.87 7.03 7.02

Average Tariff (Existing, FY 09-

10)

7.06 4.93 7.06 6.68

Average Tariff under Uniform

Tariff

7.02 7.02 7.02 7.02


The ACoS of all the licenses in Mumbai taken together was Rs 7.02/unit in FY 09-10. If the tariff for all licensees is adjusted in such a manner that the average tariff of all licensees is equal to Rs 7.02/unit then the revenue surplus generated in TPC-D and BEST at such a tariff would be sufficient to neutralize the revenue gap of RInfra-D. Thus at this average tariff inter-utility transfers can be effectively used as a tariff equalisation mechanism and there would be no need for any additional support in form of a government support to implement URT. However, it would require increasing the average tariffs of TPC-D from Rs 4.93/unit to Rs 7.02/unit which would result in a tariff shock to the consumers of TPC-D.

While inter-utility transfers can serve as a mechanism for implementation of URT in Mumbai, given the cost and revenue structure of the licensees, the minimum tariff at which such a mechanism can be sustained would involve a steep increase in the tariff of TPC-D. Thus, such a mechanism cannot be implemented in the short run as it would result in a tariff shock to a large number of consumers in the city.

Government Support Uniform Retail Tariff can be implemented in Mumbai in the short run, at relatively low tariffs, only by provision of additional resources in the form of government support to the licensees.

The state government in several states in India such as Rajasthan and Karnataka provides deficit support to the licensees, who are primary government owned. Other states such like Gujarat, Maharashtra and Chhattisgarh provide support to select class of consumers, mostly BPL and agricultural consumers.

In certain states the tariff equalisation mechanisms discussed earlier have been used in conjunction with state government support to enable implementation of Uniform Retail Tariff. In Delhi, for example, the Differential Bulk Supply Tariff that was operational till 2007 was in fact a subsidised Differential Bulk Supply Tariff (BST) wherein the State Government provided support to the bulk supplier of electricity (the Transco) to enable uniform and stable tariffs in the city. Even for domestic consumers, the State Government provided support to negate hike in tariffs.

Merits

A direct, targeted government support to a particular category of consumers that guarantees Uniform Retail Tariffs for that category of consumers may be preferred to cross subsidising consumers of one licensee by levying additional charges on consumers of other licensees or by increasing the tariff for other category of consumers.


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A targeted support would not only be more transparent, it would also ensure that the more efficient utility is not penalized for better performance.

Demerits

A government support that enables a uniform retail tariff that is below the cost reflective tariff for the utilities will promote inefficiency as the utilities will not have any incentive to decrease costs.

Support Requirement for Imlementing URT in Mumbai In this section the impact of implementation of Uniform Retail Tariff on the licensees in Mumbai has been simulated at tariffs that are below the cost reflective tariffs for the licensees. The approach and methodology for the simulation exercise is similar to the simulations carried out in the simulation dealing with inter-utility transfers.

Scenario 4: Energy Charges applicable in TPC-D area for FY 09-10 considered as URT

This scenario has been built considering the energy charges approved for TPC-D area as the URT for all licensees in Mumbai. Since, TPC-D tariffs are lower than RInfra-D and BEST tariffs, it is expected that a deficit will be generated for both the licensees at such a tariff, which would have to be financed through a support by the government. The table below contains the results of the simulation carried out under Scenario 4 for each cumulative inclusion of consumer category.

Table 19: Simulated Cumulative (Gap)/Surplus under Scenario 4: Energy Charges applicable in TPC-D area for FY 09-10 considered as URT


TPC-D (Rs Cr)

BEST (Rs Cr)

Total (Rs Cr)

Base Case (555) 16 14 (525)

LT –Residential 0-100 units (942) 16 (19) (946)

LT –Residential 101-300 units (1,370) 16 (73) (1,427)


LT –Residential Above 500

units

(1,749) 16 (198) (1,932)

LT –Commercial (2,855) 16 (828) (3,667)

LT-Industry (3,066) 16 (864) (3,915)

All LT Consumers (3,148) 16 (869) (4,001)

HT-Housing (3,153) 16 (868) (4,005)

HT-Commercial (3,348) 16 (944) (4,276)

All HT &LT Consumers (3,506) 16 (967) (4,458)


For FY 09-10, MERC had approved a revenue gap of Rs 555 Cr for RInfra-D and surplus of Rs 16 Cr and Rs 14 Cr for TPC-D and BEST respectively, as shown in Table 15. In the table above, the revenue gap/surplus of the licensees in this base case is compared with the gap/surplus of the licensees under Scenario 4 to determine the impact of implementation of URT on the licensees.

Table 19 above depicts the impact, on the licensees, on implementing URT for different category of consumers starting with the LT Residential (0-100 units) category. Equalising and setting the tariffs for this particular category equal to the tariff applicable in the TPC-D area (Rs 1.30/unit) results in an increase of Rs 387 Cr in the revenue gap of RInfra-D (the gap increases to Rs 942 Cr from Rs 555 Cr). At TPC-D tariffs, BEST no longer has a surplus of Rs 14 Cr but rather a deficit of Rs 19 Cr. Thus, if uniform retail tariff is applied for LT Residential consumers (who consume less than a 100 units per month) at the TPC-D tariff, it would result in an additional aggregate deficit of Rs 421 Cr (Rs 387 Cr in RInfra-D and Rs 34 Cr in BEST). This additional deficit will have to be financed by the state government in the form of direct support to the consumers.


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If uniform retail tariff is applied for all consumers in the residential category at a tariff equal to the TPC-D tariff for FY 09-10, an additional deficit of Rs 1194 Cr and Rs 213 Cr is generated for R-Infra-D and BEST respectively. Thus, implementing uniform retail tariff for all consumers in the residential category at the TPC-D tariffs would involve support of Rs 1407 Cr.

Similarly, implementing uniform retail tariff for consumers of all categories at tariff equal to TPC-D tariff for FY 09-10 would result in an additional revenue gap of Rs 2,952 Cr and Rs 981 Cr in RInfra-D and BEST respectively which will have to be financed by the state support.

Scenario 5: Energy Charges applicable in TPC-D area for FY 09-10, escalated by 10%, considered as URT

From the above simulation it is clear that implementation of TPC-D tariff as the URT for Mumbai would require a good amount of support to be given to consumers. A more practical approach, that involves a more moderate support burden, would thus require tariff for BEST and RInfra-D to be set higher than the existing TPC-D tariff. To lend a measure of uniformity to the tariffs in Mumbai, URT may be set equal to TPC-D tariff, escalated by 10%. Uniformity in tariffs in such a scenario would thus mean retail tariffs that are within 10% band of each other, a case similar to the scenario existing in FY 04-05.

Since TPC-D tariff, even after an escalation of 10%, is lower than RInfra-D and BEST tariff, it is expected that a deficit will be generated for both the licensees at such a tariff, which will have to be financed through a support.

The table below contains the results of the simulation carried out under Scenario 5 for each cumulative inclusion of consumer category.

Table 20: Simulated Cumulative (Gap)/Surplus under Scenario 5: Energy Charges applicable in TPC-D area for FY 09-10, escalated by 10%, considered as URT


TPC-D (Rs Cr)

BEST (Rs Cr)

Total (Rs Cr)

Base Case (555) 16 14 (525)

LT –Residential 0-100 units (911) 16 (11) (906)




units

(1,646) 16 (152) (1,783)

LT –Commercial (2,658) 16 (713) (3,355)

LT-Industry (2,838) 16 (742) (3,564)

All LT Consumers (2,904) 16 (742) (3,630)

HT-Housing (2,907) 16 (740) (3,632)

HT-Commercial (3,082) 16 (799) (3,866)

All HT &LT Consumers (3,221) 16 (817) (4,023)


The above table depicts the impact of reducing the tariffs of RInfra-D and BEST so as to be within 10%of TPC-D tariffs for FY09-10. Equalising and setting tariffs for LT Residential (0-100 units) Category equal to the tariff applicable in the TPC-D area, escalated by 10% (Rs 1.43/unit) results in an increase of Rs 356 Cr in the revenue gap of RInfra-D (the gap increases to Rs 911 Cr from Rs 555 Cr). At this tariff, BEST no longer has a surplus of Rs 14 Cr but rather a deficit Rs 11 Cr. Thus, even if tariff is reduced for LT Residential consumers (who consume less than a 100 units per month) it would result in an additional aggregate deficit of Rs 382 Cr (Rs356 Cr in RInfra-D and Rs 25 Cr in BEST)27. This additional deficit will have to be financed by the state government.

If tariff for all consumers of BEST and RInfra-D in the Residential Category are decreased, an additional deficit of Rs 1091 Cr and Rs 167 Cr is generated in RInfra-D and BEST respectively. Thus, implementing such

27 Assuming cost and revenue structure and category-wise sales and tariff for FY 09-10 for each licensee


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uniformity in retail tariff for all consumers in the Residential Category would involve an additional support of Rs 1258 Cr.

Similarly, reducing the tariff of all consumers of BEST and RInfra-D to a tariff equal to TPC-D tariff for FY 09-10, escalated by 10% would result in an additional revenue gap of Rs 2,667 Cr and Rs 831 Cr in RInfra-D and BEST respectively that will have to be financed by the state support.

Scenario 6: Projected tariff for FY 09-10 considered as URT

From the above simulations it is apparent that for sustaining any tariff equal to or below the average cost of all licensees for FY 09-10 (Rs 7.02 per unit) as URT, additional resources in the form of Govt Support will be required. It is also clear that the level of support required would be very high if URT has to be set at TPC-D tariff for FY 09-10.

However, URT may be implemented at tariff higher than the current TPC-D tariff. The additional revenue deficit generated at such a tariff may be financed by a mix of state support and cross-subsidy in the form of inter-utility transfers. The choice of tariff considered as URT in such a scenario would be important. The scenario described below has been built by considering a tariff that is in line with the historical trend in RInfra-D tariffs as URT.

As has been mentioned in previous sections, there has been a sharp increase in the tariff of RInfra-D area since FY 2007-08 largely due to the sharp increase in the power purchase cost of the licensee. It may be argued that if RInfra-D had been able to manage its power purchase expenses more effectively, there would have been a much lower increase in the ACoS of RInfra-D. This would have led to tariffs in RInfra-D area to increase at a more reasonable pace, as had been the case up till FY 06-07. Such a tariff, which would be lower than the existing RInfra-D tariff may be chosen as the URT.

The graph below depicts the long term increase in the average tariffs of RInfra-D

Figure 8: Historical Trend in RInfra-D

Tariffs

Source: RInfra-D MYT Tariff Petition in Case No. 75 of 2006

The average Residential tariff of RInfra-D increased from Rs 2.18 per unit in FY 1996-97 to Rs 2.82 per unit in FY 2005-06 i.e., at the rate of about 3% per annum over a period of ten years. Applying an increase of 3% on tariffs of different consumer categories of RInfra-D in FY 2006-07 results in a tariff structure as given below:

Table 21: Projected Tariffs (Energy Charges) of RInfra-D for FY 09-10 (Rs./unit)

Existing Tariff FY 09-10 RInfra-D

Existing Tariff FY 09-10

BEST


TPC-D

Tariff @ 3 % increase per

annum

LT –Residential (BPL) 0.40 0.40 0.40 0.44

LT –Residential 0-100 units

2.96 1.80 1.30 1.75


5.56 3.70 2.70 3.93


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Existing Tariff FY 09-10 RInfra-D


BEST


TPC-D

Tariff @ 3 % increase per

annum LT –Residential 301-500 units

9.16 5.90 4.20 6.28


10.61 7.90 4.90 6.28

LT –Commercial (0-20 kW)

7.95 6.60 3.85 5.51

LT –Commercial (>20 and ≤50 kW)

10.26 8.90 4.30 5.51

LT –Commercial (>50 kW) 10.91 9.80 4.65 5.51

LT-Industry (0-20 kW) 7.76 6.01 4.10 5.19

LT-Industry (>20 kW) 7.41 7.10 4.60 3.82

LT-Advertisements and Hoarding

17.66 12.92 13.55 12.02

LT Temporary Supply 15.81 10.59 11.00 8.74

HT-Housing 5.16 3.61 3.80 3.28

HT-Commercial 8.41 6.36 4.35 3.50

HT-Industry 7.56 5.81 4.10 3.50

HT Railways (22kV) 4.10 4.10 4.10 4.10

HT Railways (100kV) 4.03 4.03 4.03 4.03

HT Temporary Supply 11.00 9.00 9.00 11.00

Source: MERC Tariff Orders, PwC analysis

From the table above we can see that the tariffs obtained through such an exercise are lower than the tariffs of RInfra-D and BEST in FY 09-10, though they are still higher than the tariffs of TPC-D, at least for the residential category of consumers. Following are the results of the simulation considering these projected tariffs as the URT:

Table 22: Simulated Cumulative (Gap)/Surplus under Scenario 6: Projected tariff for FY 09-10 considered as URT


TPC-D (Rs Cr)

BEST (Rs Cr)

Total (Rs Cr)

Base Case (555) 16 14 (525)





units

(1,341) 29 (24) (1,336)

LT –Commercial (2,123) 56 (432) (2,499)

LT-Industry (2,357) 44 (470) (2,783)

All LT Consumers (2,472) 43 (485) (2,914)

HT-Housing (2,478) 43 (486) (2,921)

HT-Commercial (2,715) (2) (593) (3,310)

All HT &LT Consumers (2,900) (51) (625) (3,576)


The above table depicts the impact of applying the URT selectively starting with the LT Residential (0-100 units) Category. Equalising and setting the tariffs for this particular category equal to the projected tariff results in an increase of Rs 282 Cr in the revenue gap of RInfra-D (the gap increases to Rs 837 Cr from Rs 555 Cr), a reduction in the surplus of BEST by Rs 3 Cr and an increase in the surplus of TPC-D by Rs .70 Cr. Thus, setting


PwC Page 41 of 80

the URT at this level would require a support of Rs 285 Cr and would involve transfer of Rs .70 Cr as cross support from TPC-D to RInfra-D and BEST.

Similarly, implementing uniform retail tariffs for all consumers of the residential category at tariffs equal to the projected tariffs for FY 09-10 would result in an additional revenue gap of Rs 786 Cr and Rs 38 Cr in RInfra-D and BEST respectively and an additional surplus of Rs 13 Cr in TPC-D. Thus, setting the URT at this level would require a support of Rs 811 Cr and would involve transfer of Rs 13 Cr as cross support from TPC-D to RInfra-D and BEST.

For the commercial and industrial category of consumers, the projected tariff obtained above is lower than even the existing tariff of TPC-D. Implementing URT for all consumers at such a tariff would thus, cause the revenue gap of RInfra-D to increase by Rs 2346 Cr and would result in an additional revenue requirement of Rs 66 Cr and Rs 639 Cr in TPC-D and BEST.

Comparison of Tariff Equalisation Methods The following table contains a comparison of the various tariff equalisation mechanisms and its feasibility in Mumbai that have been discussed in this section.

Description DBST Inter

Utility

Transfers

Transmission

Charge

Govt.

Support

Geographical

Boundary

Redefinition

Simplicity

Ease of

administration

Impact outside

distribution

network

Ease of

implementation

Government

commitment

required

Feasibility in

Mumbai


Summary of Simulations The following table summarises the impact on the licensees in Mumbai under various scenarios discussed above when URT is applied only for the LT Residential Category (0-100 units) only.

Table 23: Additional Revenue (Gap)/Surplus Generated Under URT - LT Residential Category (0-100) Units

RInfra-D (Rs Cr)

TPC-D (Rs Cr)

BEST (Rs Cr)

Financed by Total Support

Scenario 1 - BEST tariffs considered as URT

(270) 0.75 - Inter-utility transfers /

Support

270


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RInfra-D (Rs Cr)

TPC-D (Rs Cr)

BEST (Rs Cr)


Scenario 2 - RInfra-D tariffs considered as URT

- 2 78 NA NA

Scenario 3 - Equal Average Tariffs

NA NA NA NA NA

Scenario 4 - TPC-D tariffs considered as URT

(387) - (34) Support 421

Scenario 5 - TPC-D +10% tariffs considered as URT

(357) - (25) Support 382

Scenario 6 - Projected RInfra-D tariffs considered as URT

(282) 0.70 (3) Inter-utility transfers /

Support

285


The following table summarises the impact on the licensees in Mumbai under various scenarios discussed above when URT is applied only for all residential consumers.

Table 24: Additional Revenue (Gap)/Surplus Generated Under URT - LT Residential Category

RInfra-D (Rs Cr)

TPC-D (Rs Cr)

BEST (Rs Cr)



(757) 19 - Inter-utility

transfers /

Support

738


- 42 318 NA NA


NA NA NA NA NA


(1,194) - (213) Support 1,407


(1,091) - (167) Support 1,258


(786) 13 (38) Inter-utility

transfers /

Support

811


The following table summarises the impact on the licensees in Mumbai under various scenarios discussed above when URT is applied only for all consumers.

Table 25: Additional Revenue (Gap)/Surplus Generated Under URT - All Consumers

RInfra-D (Rs Cr)

TPC-D (Rs Cr)

BEST (Rs Cr)



(1,358) 449 - Inter-utility

transfers /

Support

909


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RInfra-D (Rs Cr)

TPC-D (Rs Cr)

BEST (Rs Cr)



- 768 673 NA NA


NA NA NA NA NA


(2,952) - (981) Support 3,933


(2,667) - (831) Support 3,498


(2,346) (66) (639) Inter-utility

transfers /

Support

3,051


From the feasibility study of various tariff equalization mechanisms and simulation exercises detailed in this section it can be inferred that Uniform Retail Tariffs can be implemented immediately only by way of support from State Government as described above, either in conjunction with an inter-utility transfer or independent of it. However, a system of inter-utility transfers cannot alone be used to equalise tariffs in the short run as such a mechanism would necessarily involve steep hike in tariff for TPC-D customers. Secondly, support from State Government only by for a specific region may not be a feasible option in the long-run.

The best way to address the issue of Uniform Retail Tariff is to prepare a road map, with enablers that would allow implementation of URT in the long-run. The following section details the road map developed to ensure that tariffs across utilities converge at a certain level of uniformity within the desired period and that the Govt support, if required to be given, is removed in a phased manner.


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Section VI- Roadmap for implementation of Uniform Retail Tariffs in Mumbai

Need for the Roadmap The increasing divergence in the ACoS of the three distribution licensees, primarily driven by the variation in power purchase cost has led to a high variation in retail tariffs applicable in different parts of the city. The previous section brings out that a Delhi style model of Differential Bulk Supply Tariff mechanism cannot be applied in Mumbai to automatically bring about convergence in the power purchase cost and tariffs of various licensees. Even the system of inter-utility transfers that involves directly giving resources to the utility with the higher cost structure is not feasible in the long-run. The present cost and revenue structure of the licensees is extremely varied and it is not feasible to bring about uniformity in tariffs in absence of government support. The provision of government support can, however, only be an interim solution and is not likely to be sustainable in long-run.

Given such a scenario, uniformity in tariffs can only be achieved in the long-run after certain enabling requirements are met by the licensees which would ensure that the differential in the cost structure across licensees reduces over time. This section lays out a roadmap for gradual uniformity in tariffs that can be brought about over the next five years. A gradual convergence in the ACoS across licensees will help bring about uniformity in tariffs across the three license areas. The uniformity can be achieved if the enablers come into play or if the government supports the entire process via means of external support, if required.

Approach and Methodology

Key Enablers The roadmap for bringing about uniformity in tariffs has been laid for the period beginning from FY 11-12 to FY 15-16, the second MYT control period in the state of Maharashtra. The roadmap inherently assumes that certain actions would be taken by the licensees which would catalyse the tariffs towards uniformity. These key enablers, as outlined below, will help bring about convergence in the ACoS, and more specifically in the power purchase cost, across licensees.

Enabler I: Reduction in the proportion of power purchased by the licensees from bilateral or short-term sources of power.

The primary reason for the steep increase in the average power purchase cost of RInfra-D in the recent years has been its high reliance on short-term power. Post the reduction in power available to it from TPC-G, the licensee has been unable to source power through a long-term PPA and was procuring upto 40%28 of its power through bilateral/short-term purchase of power. This high reliance on short-term power, which is typically priced much higher than the power procured through a long term PPA, should be brought down. The other licensees, namely TPC-D and BEST, sourced approximately 5% of their power from short-term/bilateral sources in FY 09-10. During FY 10-11, while the proportion of power purchased by TPC-D from short-term sources has increased, BEST has surplus power (due to additional power being made available to BEST by TPC-G from FY10-11) and is likely to have minimal need for short-term power.

It has also been observed that at a national level, on an average, short-term power is about 5% of the total power requirement for utilities that manage power purchase efficiently. Thus, if the licensees in Mumbai prudently plan power purchase they would not be required to purchase more than 5% of their total power purchase from

28 Based on actual submitted for FY 10-11 (H1)


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short-term and bilateral sources. Taking this into consideration the following trajectory for maximum short-term power purchase (as a % of total power purchase) has been taken into consideration while assessing the availability of power for the three licensees during FY11-12 to FY15-16.

Table 26: Maximum Short-term Power Purchase29 by licensees in Mumbai

FY 11-12 FY 12-13 FY 13-14 FY 14-15 FY 15-16

RInfra-D 5% 5% 5% 5% 5%

TPC-D 5% 5% 5% 5% 5%

BEST 5% 5% 5% 5% 5%

Short Term Rates

(Rs. Per unit)

(Rs./unit

4.75 4.50 4.25 4.00 4.00

In addition to the envisaged reduction in quantity of power purchased from short-term sources, the price of power purchased from short-term sources, for any licensee, must not be more than Rs 4.75/unit and will reduce in the future to Rs.4.00/unit. This reduction in reliance on short-term power, especially by RInfra-D is the first Key Enabler for bringing about uniformity in retail tariffs in Mumbai.

Enabler II: Procurement of power through medium and long- term PPA

As per the feasibility study covered in the earlier section, it can be inferred that the lack of adequate power purchase arrangements from long/mid term sources by the licensees has led to higher power purchase cost due to over reliance on short-term and bilateral sources resulting in higher power purchase cost and subsequent increase in retail tariffs. This Reliance on short-term and bilateral sources of power for long term power requirements of the licensees can only be reduced if the licensees enter into long term/medium- term PPA‟s to meet their growing power requirements. This second enabler has, in fact, been partially met by the utilities – RInfra-D and TPC-D – who have either entered or have initiated the process for entering into medium term power purchase agreements. Rinfra-D has entered into medium term power purchase agreement with Wardha Power Company Ltd (FY11-12 to FY13-14), Abhijeet MADC Nagpur Energy Pvt. Ltd (FY11-12 to FY13-14) and

Vidharbha Industries Power Limited (FY12-13 to FY13-14). TPC-D too has initiated the process for procuring

additional medium term power and has taken approval of MERC for the same (refer, MERC Order in Case No. 20 of 2011). With these PPA‟s coming into force the reliance on short term power would reduce. It has been assumed for the purpose of this roadmap that both TPC-D and RInfra-D shall only meet about 5% of their total power requirement from short term purchase and would procure 95% of the power required by them through their existing long/medium term power or additional medium term power. However, most of agreements entered into for medium term power shall expire by FY13-14. It is anticipated that the licensees in Mumbai shall be able to arrange long term power in due course such that from FY 14-15 onwards the utilities will meet about 95% of their requirement from long term sources only. This would help in further reducing the per unit power purchase cost. This is the second key enabler for bringing about uniformity in retail tariffs in Mumbai.

It is expected that both RInfra-D and TPC-D shall enter into new long/medium term power purchase contract (apart from those already entered into by RInfra-D) during FY11-12 to FY12-13, as is shown below:

Table 27: Enabler II new medium term and long term PPA’s Licensee Source Quantity

(MW) Duration Price (Rs/unit)

FY 11-12 FY 12-13 FY 13-14 FY 14-15 FY 15-16

R Infra30

Wardha Power Company Ltd.

260 FY11-12 to FY13-14

5.47 4.92 4.03

29 as a % of total power purchase 30 Refer: Case No. 12 of 2011, Case No. 42 of 2011 and Case No. 11 of 2011 of MERC


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Licensee Source Quantity (MW)

Duration Price (Rs/unit)

Abhijeet MADC

55 FY11-12 to FY13-14

5.16 4.81 4.35

Vidharbha Industries

134 FY12-13 to FY13-14

4.33 4.14

Long-term 500-600 FY14-15 to FY15-16

3.50 3.50

TPC-D31 Medium 100 - 150 FY11-12 to FY13-14

4.75 4.50 4.25

Long Term 200 - 250 FY14-15 to FY15-16

3.50 3.50

Enabler III: Initiation of Demand Side Management

Demand Side Management refers to the actions by the utility that influence the quantity or patterns of use of energy consumed by end users, such as actions targeting reduction of peak demand or reduction of energy consumed during periods when energy-supply systems are constrained. Various DSM options have been listed below:

1. Energy Efficient Motors 2. High Efficiency Pumps 3. Energy Efficient Compressors 4. Use of Energy Efficient Appliances 5. Energy saving options in Cooling Towers 6. Replacement of High Pressure Sodium Vapour Lamps with LEDs 7. Replacement of Incandescent by Compact Fluorescent Lamps 8. Replacement of FTLs with T5 9. High Efficiency Fans and Pumps 10. Good Housekeeping Practices 11. Variable Speed Drives

In the city of Mumbai the humid weather throughout the year warrants it to the use of air-conditioning all

through-out. Heating ventilation and air conditioning load (around 1000 MW) in the Mumbai System

contribute about 30% of maximum peak demand. These include:

1) Centralized AC chillers and Air handling Units (AHU)

2) Small packaged AC of 1 TR to 5 TR

3) Small windows and split AC of 1 TR to 2 TR

4) Air coolers and ceiling fans

The initiation of DSM measures targeting the above loads would result in the savings on account of power

purchase which would benefit the utilities currently procuring costly peak power. To ascertain the savings made

on account of DSM measures require a proper study to be conducted.

The fulfilment of the three enablers outlined above by the licensees in Mumbai will enable reduction in the

average power purchase cost of RInfra-D and will help bring about convergence in the average power purchase

cost and ACoS of the three licensees. Such a convergence is also likely to enable a gradual convergence in retail

tariff across licensees in the city.

The subsequent section sets out the roadmap for bringing about uniformity in retail tariffs across Mumbai

under various scenarios. For creation of such a roadmap, the power purchase cost and other components of the

ARR have been projected, using suitable assumptions, for the period from FY11-12 to FY 15-16. The key

assumptions have been detailed in „Annexure III‟ to the report.

31 The medium term power mentioned here is over and above the power available to TPC-D from TPC-G.


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Scenarios for Revenue computation from sale of electricity To project the revenue from sale of electricity from FY 12 to FY 16 the Average Billing Rate (ABR), as approved

by the MERC, for FY 09-10 has been considered in case of RInfra-D and ABR for FY 10-11 has been considered

in case of TPC-D and BEST. These base ABR‟s for each category have been increased /decreased in order to

compute the revenue for each year from FY 11-12 to FY 15-16 under four scenarios.

The uniformity in retail Tariffs can be achieved under following scenarios.

Table 28: Scenarios for achieving uniformity in retail tariffs

Scenarios Description Impact on Categories

I Benefits of Lower Power Purchase passed on to

all consumers with priority to S1 and S2

Reduction in bands achieved for all

categories.

II Benefits of Lower Power Purchase passed on to

only S1 and S2 consumers

S1 equalized in FY12-13; S2 equalized

inFY13-14 This will result in

adjustment of revenue gap in other

categories.

III Govt. support : To achieve Trajectory for S1 and

S2 as per Scenario II & Trajectory for others as

per Scenario I

S1 equalized in FY12-13; S2 equalized

in FY13-14.Reduction in bands

achieved for all categories as per

Scenario I.

IV Govt Support for gradual uniformity in Tariff by

FY 16.

S1&S2 equalised in FY 12-13; All

Domestic in FY 13-14; Other LT by FY

14-15 and all categories in FY 15-16.

The main aim of the exercise is to present various scenarios in which convergence or similarity in tariffs can be

brought about among the distribution licensees.

It is pertinent to mention that in various scenarios showed below, the band of ABR represents the difference

between the highest ABR for the category and lowest ABR for the same category amongst the three distribution

licensees. The decreasing trend would signify that the range amongst the three distribution licensees is

narrowing and is nearing the point of convergence.

Scenario I: The following table shows the ABR trajectory of BEST, RInfra-D and TPC-D under scenario I. In

this case the impact on account of enablers has been passed on to all the categories with special focus on S1 and

S2 sub-categories of domestic category.


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Table 29: Scenario I: Band for ABR from FY 11 to FY16

Source: PwC analysis

In Scenario I, the implementation of „enablers‟ would lead to the reduction in ACoS of RInfra-D, which is

mainly on account of rationalization of power purchase cost; this reduction would lead to the convergence

between ACoS of the three distribution licensees over the time. It has been assumed that the reduction in ARR

on account of rationalization of power purchase cost would be directed towards lowering of the tariff of

domestic category and thereafter, the savings on account of power purchase cost would be transferred to other

categories. As explained in the earlier sections, there would always be difference in the cost and revenue mix of

the distribution licensees and hence, the tariffs would differ but the range in which the tariff would differ would

gradually reduce.

FY10-11 FY11-12 FY12-13 FY13-14 FY14-15 FY15-16

LT Customers

LT Residential

- BPL 0% 0% 0% 0% 0% 0%

- S1 (0-100 units) 87% 82% 54% 32% 22% 20%

- S2 (101-300 units) 84% 70% 49% 39% 28% 20%

- S3 (> 301-500 Units) 91% 77% 63% 53% 47% 40%

- S4 (Above 500 units 90% 76% 62% 52% 46% 40%

LT Commercial

- Upto 20 kW 74% 61% 56% 46% 41% 35%

- > 20 kW & < 50kW 98% 84% 78% 67% 60% 55%

- > 50kW 106% 92% 86% 74% 67% 65%

LT Industry

LT Industry < 20 kW 67% 55% 43% 34% 29% 25%

LT Industry > 20kW 41% 36% 31% 28% 28% 25%

LT Advertisement & Hoardings

50% 48% 42% 36% 32% 30%

LT Streetlights 60% 49% 44% 40% 40% 35%

LT Temporary Supply TSR 102% 100% 91% 77% 71% 70%

LT Temporary Supply TSO 81% 79% 71% 58% 54% 50%

LT Crematoriums and Burial Grounds

61% 61% 58% 56% 52% 55%

HT Customers

HT Industry 45% 39% 33% 29% 29% 25%

HT Commercial 57% 56% 48% 43% 40% 35%

HT Group housing 50% 52% 45% 40% 35% 30%

HT Temporary Supply 59% 60% 53% 47% 43% 40%


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Scenario II: The following table shows the ABR trajectory of BEST, RInfra-D and TPC-D under scenario II.

Table 30: Scenario II: Band for ABR from FY 11 to FY16

FY10-11 FY11-12 FY12-13 FY13-14 FY14-15 FY15-16

LT Customers

LT Residential

- BPL 0% 0% 0% 0% 0% 0%

- S1 (0-100 units) 87% 82% 0% 0% 0% 0%

- S2 (101-300 units) 84% 70% 69% 0% 0% 0%

- S3 (> 301-500 Units) 91% 77% 72% 76% 66% 60%

- S4 (Above 500 units 90% 76% 71% 75% 65% 60%

LT Commercial

- Upto 20 kW 74% 61% 59% 63% 54% 50%

- > 20 kW & < 50kW 98% 84% 85% 89% 79% 75%

- > 50kW 106% 92% 93% 97% 87% 80%

LT Industry

LT Industry < 20 kW 67% 55% 53% 57% 48% 45%

LT Industry > 20kW 41% 36% 34% 37% 30% 25%

LT Advertisement & Hoardings 50% 48% 44% 46% 33% 30%

LT Streetlights 60% 49% 47% 50% 42% 40%



LT Crematoriums and Burial

Grounds 61% 61% 58% 56% 51% 55%

HT Customers

HT Industry 45% 39% 36% 38% 31% 30%

HT Commercial 57% 56% 51% 53% 42% 45%

HT Group housing 50% 52% 48% 49% 36% 35%



In Scenario II, the benefits of lower power purchase are passed on to only s1 and s2 sub categories. Sub-

category s1 of domestic category gets equalized (in absolute terms) in FY 12-13 and s2 category gets equalized

(in absolute terms) in FY 13-14. Under this scenario Uniform Retail Tariff gets achieved in first two categories.

However, there occurs additional tariff hike for all the other categories of consumers and level of cross-subsidy

will also rise.


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Scenario III: The following table shows the ABR trajectory of BEST, RInfra-D and TPC-D under Scenario III.

Table 31: Scenario III: Band for ABR from FY 11 to FY16

FY10-11 FY11-12 FY12-13 FY13-14 FY14-15 FY15-16

LT Customers

LT Residential

- BPL 0% 0% 0% 0% 0% 0%

- S1 (0-100 units) 87% 82% 0% 0% 0% 0%

- S2 (101-300 units) 84% 70% 49% 0% 0% 0%

- S3 (> 301-500 Units) 91% 77% 63% 53% 47% 40%

- S4 (Above 500 units 90% 76% 62% 52% 46% 40%

LT Commercial

- Upto 20 kW 74% 61% 56% 46% 41% 35%

- > 20 kW & < 50kW 98% 84% 78% 67% 60% 55%

- > 50kW 106% 92% 86% 74% 67% 65%

LT Industry

LT Industry < 20 kW 67% 55% 43% 34% 29% 25%

LT Industry > 20kW 41% 36% 31% 28% 28% 25%


LT Streetlights 60% 49% 44% 40% 40% 35%




Grounds 61% 61% 58% 56% 52% 55%

HT Customers

HT Industry 45% 39% 33% 29% 29% 25%

HT Commercial 57% 56% 48% 43% 40% 35%

HT Group housing 50% 52% 45% 40% 35% 30%


Total Support Required (Rs. Crs) 227 422 331 295


In Scenario III, it has been assumed that government will provide support to achieve uniformity in s1 and s2

sub-categories of domestic category as envisaged in Scenario II. This would ensure no additional tariff hike is

required for other categories and there is a gradual reduction in the bands of all other categories as envisaged in

Scenario I.


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Scenario IV: The following table shows the ABR trajectory of BEST, RInfra-D and TPC-D under Scenario IV.

Table 32: Scenario 4: Band for ABR from FY 11 to FY16

FY10-11 FY11-12 FY12-13 FY13-14 FY14-15 FY15-16

LT Customers

LT Residential

- BPL 0% 0% 0% 0% 0% 0%

- S1 (0-100 units) 87% 82% 0% 0% 0% 0%

- S2 (101-300 units) 84% 70% 0% 0% 0% 0%

- S3 (> 301-500 Units) 91% 77% 63% 0% 0% 0%

- S4 (Above 500 units 90% 76% 62% 0% 0% 0%

LT Commercial

- Upto 20 kW 74% 61% 56% 46% 0% 0%

- > 20 kW & < 50kW 98% 84% 78% 67% 0% 0%

- > 50kW 106% 92% 86% 74% 0% 0%

LT Industry

LT Industry < 20 kW 67% 55% 43% 34% 0% 0%

LT Industry > 20kW 41% 36% 31% 28% 0% 0%


LT Streetlights 60% 49% 44% 40% 0% 0%




Grounds 61% 61% 58% 56% 0% 0%

HT Customers

HT Industry 45% 39% 33% 29% 29% 0%

HT Commercial 57% 56% 48% 43% 40% 0%

HT Group housing 50% 52% 45% 40% 35% 0%


Total support required (Rs. Crs) - - 532 729 2062 2138


In Scenario IV, all categories achieve uniformity in retail tariffs with the government support. The uniformity is

achieved gradually; s1 and s2 gets equalized in FY12-13, entire domestic category gets equalized in FY13-14,

other LT categories get equalized in FY14-15 and all HT categories get equalized in FY15-16


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Summary of the support required under each Scenario (Rs. Crs) FY11-12 FY12-13 FY13-14 FY14-15 FY15-16

Scenario I NIL

Scenario II NIL

Scenario III 227 422 331 295

Scenario IV - 532 729 2062 2138

In Scenario I and II no support would be required as the basic assumption in these two scenarios is that the

uniformity would be brought in via increase in tariffs/internally generated and does not require any external

support.

The assumed tariff rates under each scenario are shown in „Annexure IV‟ of this report.


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Section VII: Annexure


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Annexure I: Applicable Tariffs across Mumbai

Energy Charge (Rs. /kWh)



TPC-D RInfra-D BEST

LT –Residential (BPL)

0.40 0.40 0.40


1.05 2.96 1.55


2.50 5.56 3.30


4.40 9.16 5.30


5.30 10.61 6.80

LT –Commercial (0-20 kW) /Others)

4.25 7.95 4.00 (0-300 units)

6.00 (301-500 units)

6.90 (501 to 1000 units)

7.60 (Above 1000 units)

LT –Commercial (>20 and ≤50 kW)

4.8 10.26 7.30

LT –Commercial (>50 kW)

5.05 10.91 7.55

LT-Industry (0-20 kW)

4.50 7.76 3.70 (0-300 units)

5.50 (301-500 units)

5.95 (501 to 1000 units)

6.40 (Above 1000 units)

LT-Industry (>20 kW)

5.10 7.41 5.40 20 kW> and ≤100 kW

5.30 (>100 kW)

LT-Advertisements and Hoarding

13.55 17.66 11.40

LT-Street Lights 4.00 8.31 5.30

HT-Housing 4.10 5.16 3.00

TPC-D RInfra-D BEST




HT-Commercial 5.20 8.41 5.35

HT-Industry 5.00 7.56 5.05


PwC Page 55 of 80

Annexure II: Case Study – Retail Tariffs in Delhi Organisation of Power Sector in Delhi before 2002

Before the restructuring and privatisation that occurred in Delhi in 2002, the erstwhile Delhi Vidyut Board (DVB), a public sector enterprise was responsible for the power sector of the city including generation, transmission and distribution of electricity. Another public sector utility, the New Delhi Municipal Council (NDMC), was also (and continues to be) responsible for distribution of electricity to a smaller part of the city – New Delhi, the area housing the Central Govt., the Parliament etc. The tariffs in the NDMC area have historically been different (and continue to be different) from the tariffs in other parts of the city which were served by the erstwhile DVB.

The erstwhile DVB was widely regarded as an extremely inefficient organisation. Its T&D losses were close to 48% and its commercial losses were close to Rs 1200 Cr at the time of its privatisation in 2002. The table below provides a brief overview of the DVB pre-privatisation.

Table 33: Overview of DVB (mid 2001)

Population 13.8 million

Peak Load 2879 MW

Energy Input 17362 MU

Number of Consumers 2453179

MU Billed (MU) 8112

Collection Efficiency 89%

T&D Losses 48%

Source: Prayas report on analysis of Performance of Discoms in Delhi, 2006

Restructuring of DVB and Tariff Setting During the Policy Direction Period (2002-07)

The Govt. of NCT of Delhi (GoNCTD) notified certain Policy Directions in November 2001 to enable restructuring of the erstwhile DVB and privatization of the electricity distribution business. The policy directions given included:

“The reorganisation of Delhi Vidyut Board will result in three separate distribution licensees. The Government, as a matter of policy, has decided that retail tariffs for the three distribution licensees shall be identical till the end of 2006-07, i.e., consumers of a particular category shall pay the same retail tariff irrespective of their geographical location.”

“It is necessary for the Commission to issue order(s) determining the bulk supply tariff applicable to each of the three DISCOMS for purchase of electricity from TRANSCO.”

“The Government will make available to the Transmission Company an amount of the order of, approximately, Rs. 2600 crores during the period 2002-03 to 2006-07 as loan to be repaid by the Transmission Company to the Government in a manner agreed to between that Transmission Company and the Government. The Transmission Company will use the loan to bridge the gap between its revenue requirement and the bulk supply price which it may receive from the distribution licenses32.”

32 The actual loan given to DTL was to the tune of Rs 3452 Cr and was later converted into equity. (Source: DERC MYT Order for FY08-FY11)


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“To summarise, the Commission will decide on performance standards and other factors related to

the discharge of the obligations by the distribution and retail supply licensees and determine the tariffs subject only to the requirements of consistency with these policy directions being the basis of the bidding process, viz., by taking into account the following :-

a. The AT&C loss programme is to be as per the bid submitted by the purchaser (selected bidder) as per para 11 above.

b. Distribution licensees shall be entitled to retain 50% of the additional revenues from any AT&C loss reduction over and above then level proposed in the bid by the Purchaser (selected bidder) and this shall not be counted as revenue for the purpose of tariff fixation for the succeeding years. The balance 50% of the excess efficiency gain shall be counted as revenue for the purpose of tariff fixation.

c. Distribution licensees earn, at least, 16% return on the issued and paid up capital and free reserves

d. The amount agreed to be made available by the Government to TRANSCO will be as a loan for the particular year.”

Subsequently, DVB was unbundled into two generation companies, i.e., Indraprastha Power Generation Company Limited (IPGCL) and Pragati Power Corporation Limited (PPCL), one transmission company, i.e., Delhi Transco Limited (DTL) and 3 distribution companies viz. i.e., BSES Rajdhani Power Limited (BRPL), BSES Yamuna Power Limited (BYPL), North Delhi Power Limited (NDPL).

The cost of business in the license area of the three Discoms differed due to the difference in AT&C losses, in consumer mix and in cost of modernization (investment related costs) of the system inherited from the erstwhile DVB. The table below shows the pre-privatisation profile of the Discoms in Delhi.

Opening Profile of the Discoms in Delhi (mid-2001)

Particulars BRPL BYPL NDPL

Number of Consumers 849059 861225 742895

MU Billed (MU) 3627 1967 2518

Opening AT&C Loss (%)* 52.1% 61.1% 49.5%

Collection Efficiency 90% 88% 89%

Source: Prayas report on analysis of Privatised Discoms in Delhi, 2006

* As given in the Policy Directions issued by GoNCTD

Profile as per Tariff Order for FY 06-07

Particulars BRPL BYPL NDPL

MU Billed (MU) 6117 3338 4310

Opening AT&C Loss (%)* 31.10% 39.95% 31.10%

Collection Efficiency 98% 98% 94%

Source: Tariff Order of FY 06-07

As mandated by the Policy Directions the retail tariffs for the three private distribution licensees continued to be identical till the end of FY 06-07 (the tariffs for the NDMC area were not same as tariffs in other parts of Delhi). To facilitate this, Bulk Supply Tariff for each DISCOM was determined on the basis of its paying capacity. Thus, the policy directions issued for restructuring also served as the framework for determination of Differential Bulk Supply Tariff (DBST) mechanism in Delhi.

Differential Bulk Supply Tariff in Delhi


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Upto FY 06-07, DTL was responsible for the purchase of power from the various sources for meeting the power requirement of all Discoms in Delhi. The Discoms were required to pay to DTL for the power purchase cost as per the Differential Bulk Supply Tariff (BST) notified by DERC on the basis of the paying capacity of each Discom.

As a first step for determining the paying capacity (i.e., amount available for power purchase) of each Discom, the Discom‟s revenue requirement (ARR), excluding power purchase cost, was calculated so as to recover all its prudently incurred expenses and to provide 16% return on equity invested. This amount was deducted from the projected revenue(s) and the residual amount was deemed to be available for purchase of power from DTL and was divided by the energy requirement of the Discom to arrive at the BST for the Discom. Thus the BST for each Discom was different and was independent of its power purchase cost, and was in fact, in most cases, lower than the cost of power incurred by DTL.

The shortfall in revenue of DTL, after collection of revenue from the Discoms on the basis of their paying capacity, was met by additional support from GoNCTD. The Govt. provided a support of Rs 3452 Cr between FY03 and FY07 to the bridge the gap between the cost of power and the amount realized through Bulk Supply Tariff. The mechanism of tariff setting during the Policy Direction Period in Delhi can be summarised as following:

Thus a Differential Bulk Supply Tariff mechanism backed by government subsidy ensured that retail tariffs remained uniform across the three private Discoms in Delhi from FY02-03 to FY06-07. The support from the Government was, however, intended only as a transitional support. It was expected that at the end of the five year Policy Direction period, the reduction in the AT&C loses achieved by the Discoms would ensure that they are self sufficient and that the Discoms would not require any further support from the Government33.

Tariff Setting post the Policy Direction Period (2007- 2010)

Re-assignment of existing PPAs

At the end of the policy direction period in 2007, the responsibility for managing power purchase was transferred to the distribution companies. The reassignment of the existing PPAs to the Discoms in Delhi was carried out by the DERC on behest of the Govt. of Delhi. It was also no longer mandated by the Govt. that the tariffs be uniform across all the private Discoms. In its order passed in March, 2007 on reassignment of the existing PPAs to the Discoms in Delhi the DERC noted that:

“… The Government was of the opinion that retail tariffs should reflect the cost of power and that performance of the Distribution Utility has to be given due recognition. The Principal Secretary (Power) mentioned that the period from 01.04.2007 would be the second control period and therefore the issue of uniform retail supply tariff does not hold good. It was indicated that the retail supply tariff can be similar but need not be same or uniform. However, in case there was wide disparity in the retail tariffs ultimately arrived at across the three Distribution Companies, the Government was willing to consider giving subsidy or any other support to consumers for a limited period and the Government would participate in the proceedings of the Commission from the beginning to assist the Commission in the tariff setting process.”

33 The Govt. in Delhi provided two subsidies even after 2007. The first was a general subsidy to all domestic customers, granted since 2005 following massive public outcry against successive tariff hikes. Under it, a consumer got a subsidy of 25 paise per unit for consumption up to 20 units, 35 paise per unit for consumption between 201 to 400 units and 55 paise per unit for consumption above 400 units. This subsidy was withdrawn in 2009. Under the second subsidy, introduced in 2008, consumers using up to 150 units a month got Rs 1 subsidy per unit in non-peak months during summer and winter. For peak months, the limit was up to 200 units. This subsidy was given up till the end of FY 10-11.


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Thus there is currently no policy in Delhi that mandates fixing of Uniform Retail Tariffs across all distribution licensees. However, the reassignment of the existing PPAs (in 2007) to the four Discoms was carried out in a manner that would ensure some level of uniformity in tariffs across the Discoms. The DERC stated in its order:

“The Commission has examined the views expressed by the Government and all the Discoms. The Commission in its endeavour to reassign the PPAs would be guided by the existing statutory provisions including Section 8.4.2 of the National Tariff Policy which states the following:

“The State Governments may make such assignments taking care of different load profiles of the distribution companies so that retail tariffs are uniform in the State for different categories of consumers.”

The Commission is of the view that the first control period begins with the reassignment of the PPAs and therefore, a conscious attempt has to be made to limit the variation in retail tariffs across the Discoms within an acceptable band. The Commission also feels reassured by the undertaking given by the Government that it is willing to consider giving subsidy or any other support for a limited time period in case the need so arises. The attempt of the Commission would be to have similar retail tariffs in Delhi if not exactly identical. What would be the extent of variations in the retail tariffs depends upon a lot many factors and can only be known when the Licensees submit their Tariff petitions under the MYT framework. Keeping all the above in view, the Commission issues the following direction:

i) The NDMC and the MES would be allocated a capacity of 350MW and 50 MW, respectively from the Badarpur TPS. Though the Commission visualises pitfalls in allocating capacity only from a single power station, the Commission has gone along with what was submitted by these two Licensees when consultations took place on the 30th of March 2007.

(ii) All existing PPAs (with the exception of Badarpur TPS, NCR Dadri TPS, IPGCL and the PPCL both existing and future capacities) shall be allocated amongst the three Distribution Companies, namely, the NDPL, BRPL and BYPL in a ratio which would be in proportion to the energy drawn by them from the date of unbundling to February 2007. For the NCR Dadri TPS, IPGCL and the PPCL, only 85% of the capacities shall be allocated amongst the three Discoms on the same principle. Insofar as Badarpur is concerned, only 85% of the capacity left after allocating to the NDMC and the MES would be allocated between the three Discoms, again on similar lines. The capacity allotted to each of the Distribution Companies arrived at on the basis of this principle is annexed along with this Order.

(iii) 15% of the capacity of NCR Dadri TPS, IPGCL and PPCL and the balance of what is left from the Badarpur TPS after allocating to the NDMC and the MES would be treated as unallocated share, analogous to what is done in the Central sector in respect of the Central Sector Power Units (CPSUs). This unallocated share of 15% would be at the disposal of the Government of NCT of Delhi and may be allotted by the Government to the Distribution Company(ies) whose consumers are likely to face a relatively higher retail tariff on account of this exercise of reassignment of PPAs34. The cost of power from these plants is regulated and is lower than the cost at which power would be procured through bilateral arrangements and also through UI at present. In case no allocation from the unallocated capacity is done within the specified time frame, such unallocated capacity shall revert back to the three DISCOMs in the same ratio in which the capacity allocation was done. The Government may also use this unallocated share to meet any contingency or force-majeure condition that may arise in any particular geographical area in the NCT of Delhi.

(iv) If the allocation results in any excess capacity in the hands of any of the Distribution Companies/Agency at any time, such excess capacity shall be offered to other Distribution Utilities in Delhi at the first instance and only if such spare capacity cannot be absorbed within Delhi, it shall be offered to others. Necessary arrangements for this purpose shall be evolved in the Power Procurement Group constituted by the Government of NCT of Delhi.”

34 The PPAs were reassigned again vide Commission‟s Order dated 7.03.2008. NDMC was allocated 125 MW from Badarpur TPC, 125 MW from Dadri TPS and 100 MW from Pragati Power Plant of PPCL instead of 350 MW from Badarpur TPS on the condition that 15% of this allocated power (i.e. 53 MW which is equal to 15% of 350 MW) would be treated as unallocated share. Thus currently, a total of 299 MW (as per March Order) plus 53 MW i.e. 352 MW is available with Government of Delhi as unallocated share.


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The DERC thus utilised the opportunity provided to it in form of reallocation of PPAs to take measures that have ensured a measure of uniformity in the retail tariffs across the Discoms in Delhi. The 15% unallocated capacity of the generating stations owned by the Delhi Government (and of Dadri TPS and Badarpur TPS of NTPC, both of which had PPAs with the erstwhile DVB) is allocated periodically, by order of the Government of Delhi, to the Discom that faces the highest cost/shortage of power. Besides, the clause ensuring that the cheaper power from long term power sources is only sold out of the Delhi if all the Discoms have surplus power has also ensured the Discoms rely on expensive power procured from short term/bilateral sources only to a limited extent.

MYT Tariff Order for Control Period (FY07-08 to FY10-11) and Retail Tariff for FY07-08 and FY 08-09

The tariff order for the period FY07-08 to FY10-11 was issued by the DERC in February, 2008 wherein it approved the ARR for all three Discoms for the Control Period and set the retail tariff for FY 07-08 and FY 08-09. While it was no longer mandated that the tariff across the Discoms be uniform, the DERC “regarding the mixed response of the stakeholders for application of tariff for different consumer categories, (the Commission has) decided to continue with the same philosophy for determination of tariff as specified in the previous Tariff Orders” and kept the tariff same across all the Discoms.

However, after the transfer of responsibility of power purchase to the Discoms and the reallocation of PPAs in 2007, the DERC could no longer use the mechanism of Differential Bulk Supply Tariff as before for ensuring uniform tariffs. Meanwhile, the cost structures of the Discoms continued to be different. The graphs below shows the power purchase cost and average cost of supply of the three private Discoms in FY07-08 and FY 08-09:

Revenue (Gap)/ Surplus (Rs.Crs) for Discom’s

Particulars FY 07-08 FY 08-09 FY 07-08 FY 08-09

At Existing Tariff Approved Tariff

BRPL (216.81) 60.14 (214.29) 107.29

BYPL (23.82) (19.63) (22.62) 3.37

NDPL (134.73) 30.83 (130.70) 71.14

Source: DERC MYT Tariff Orders, 2008

As can be seen from the above graphs, the average costs of the three utilities deviated in the band of + 10%. DERC approved a revenue loss for all three Discoms in FY 07-08 but estimated that by FY 08-09 NDPL and BRPL would have revenue surplus of Rs 30.83 Cr and Rs 60.14 Cr respectively even at the existing tariff, while BYPL would face a revenue gap of Rs 19.63 Cr at the existing tariff. However, the revenue gap of BYPL could be covered by a marginal increase in tariffs. In order to maintain uniform tariffs across the licensees the DERC


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allowed a uniform energy charge increase of 5 Paisa per unit across all categories across all three licensees so that BYPL was able to meet its revenue gap in FY08-09. The other two Discoms which had a revenue surplus were allowed to charge a tariff, higher than the tariff required to meet their revenue requirement. The additional amount recovered by these Discoms was retained by the licensees, but was parked separately as a Contingency Reserve to be used at a later stage.

APR Order for FY07-08 and Retail Tariff for FY 09-10

In its last tariff order issued in May, 2009 DERC carried out truing up for FY 07-08 and approved the retail tariff for FY 09-10. The table below provides a snapshot of the (gap)/ surplus position of each Discom.

Revenue (Gap)/ Surplus (Rs.Crs) for Discom’s

Particulars FY 09-10

At Existing

Revenue

At Approved

Revenue

BRPL 180.17 168.88

BYPL 24.82 19.52

NDPL 66.30 46.74

Source: DERC Tariff Order FY 2009-10

DERC estimated that the existing tariff was sufficient to recover the costs of the Discoms. It approved a revenue surplus for each of the Discoms which had benefitted from reduction in AT&C losses. It was also estimated that three Discoms would have surplus power during the year which they would be able to sell outside the state.

The performance of the utilities was, however, not uniform. The approved revenue surplus at existing tariff for BRPL was seven times the revenue surplus approved for BYPL. However, instead of passing on the benefits of the improved efficiency of the Discom to consumers and letting tariffs reflect the actual cost of supply of the Discom, the DERC continued the policy of uniform tariff for FY 09-10 as well. Instead of approving a differential tariff, the DERC approved a differential revenue surplus for each utility and was able to maintain uniform tariffs in the city.


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Annexure III: Key Assumptions35 Sales The sales of the distribution licensees have been projected based on the past growth trends and keeping in mind the changing distribution scenario in Mumbai.

Total Sales (Direct and Changeover sales) for the TPC-D from FY11-12 to FY15-16 have been projected based on the projections submitted by TPC-D in Case no. 20 of 201136. Historically, the sales of TPC-D have grown at a CAGR of 6%, the percentage of growth in the sales has been maintained for Direct Sales. But for the changeover sales a significant growth has been assumed in the period from FY 10-11 to FY 11-12. The changeover sales growth rate will thereafter stabilize in the period FY 12-13 to FY 15-16. TPC-D has been receiving almost 500 new applications everyday from consumers seeking changeover to TPC-D. The changeover has been very swift in the commercial and industrial category of consumers. However, with some big consumers such as MIAL (Mumbai International Airport Limited) already opting for power supply from TPC-D, the migration of commercial and industrial consumers into the TPC-D network is likely to decrease going further during the FY12-FY16.The migration of consumers in the domestic category is likely to remain high and even increase further in FY11-12 but stabilize thereafter. The Sales for RInfra-D have been projected based on the historical growth rates and the changeover sales have been considered based on the changeover sales projected by TPC-D. Sales for BEST have been projected based on the historical growth rates and expected trends.

Taking into account the changeover, total sales of TPC-D have been projected in two parts a) direct sales and b) changeover sales. Similarly, for RInfra-D the changeover sales to TPC-D will lead to a reduction in total sales of RInfra-D but shall stabilise and increase as the migration of consumers reduces.

The table below shows the projected sales of the three distribution licensees from FY 12 to FY 16. The category-

wise sales have been detailed out in the Annexure II of this report.

Table 34: Projected Sales (MUs) for the distribution Licensees of Mumbai

Sales FY 11-12 FY 12-13 FY 13-14 FY 14-15 FY 15-16

RInfra-D 6398 6765 7155 7571 8013

TPC-D 6216 6453 6667 6916 7205

BEST 4619 4862 5122 5399 5696

Changeover sales 2044 3305 3371 3438 3507

The category-wise projected sales of RInfra-D for the period FY 2011-12 to FY 2015-16 is shown the following

table

Table 35: Category-wise sales of RInfra-D

Total Sales

2010-11 2011-12 2012-13 2013-14 2014-15 2015-16

LT –Residential (BPL) 0 0 0 0 0 0

35 The Projections done for various ARR components and sales are solely for the purpose of the report and should not in any way be construed as projections done for Tariff determination process. 36 Order on petition of the Tata Power Co. Ltd to seek approval of the proposed quantum of Power for Medium term power procurement

through Competitive bidding process under Case 1 bidding and Bidding documents in accordance with Section 63 of the Electricity Act,

2003 and Competitive Bidding Guidelines.


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Total Sales

2010-11 2011-12 2012-13 2013-14 2014-15 2015-16

LT –Residential 0-100 units 2231 2222 2217 2324 2436 2553

LT –Residential 101-300

units

1530 1500 1546 1621 1699 1781


units

321 299 343 360 377 396


units

327 269 390 409 429 450

Sub Total 4409 4290 4497 4714 4941 5179

LT –Commercial (0-20 kW) 1167 1016 1107 1206 1314 1432

LT –Commercial (>20 and

≤50 kW)

183 159 173 189 206 224

LT –Commercial (>50 kW) 425 370 403 439 478 521

Sub Total 1775 1545 1683 1834 1998 2178

LT-Industry (0-20 kW) 104 63 65 68 70 73

LT-Industry (>20 kW) 318 193 200 208 216 224

Sub Total 422 255 265 275 286 297

LT-Advertisements and

Hoarding

3 4 4 5 5 6

LT-Street Lights 63 65 67 69 72 74

LT Temporary Supply 103 105 108 111 113 116

HT-Housing 36 31 33 34 36 37

HT-Commercial 135 47 51 56 61 67

HT-Industry 155 48 48 49 50 51

HT Railways (22kV) - - - - - -

HT Railways (100kV) - - - - - -

Sub Total 326 126 132 139 147 156

Electric Crematorium - - - - - -

HT Temporary Supply 8 8 8 8 8 8

Total 7,109 6,398 6,765 7,155 7,571 8,013

The category-wise projected sales of TPC-D for the period FY 2011-12 to FY 2015-16 is shown the following table

Table 36: Category-wise sales of TPC-D

Total Sales (MU)

2010-11 2011-12 2012-13 2013-14 2014-15 2015-16

LT –Residential (BPL)





units

132 214 220 226 232 239

Sub Total 506 865 886 907 929 953

LT –Commercial (0-20 kW) 180 277 284 292 300 308

LT –Commercial (>20 and ≤50

kW)

86 132 136 139 143 147

LT –Commercial (>50 kW) 597 918 944 968 995 1024

Sub Total 862 1327 1364 1399 1438 1480


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Total Sales (MU)

2010-11 2011-12 2012-13 2013-14 2014-15 2015-16

LT-Industry (0-20 kW) 57 80 83 85 88 91

LT-Industry (>20 kW) 452 640 660 678 699 723

Sub Total 509 720 742 763 787 813


Hoarding

0 8

LT-Street Lights - - - - - -


HT-Housing 8 15 15 15 16 16

HT-Commercial 1051 1245 1292 1335 1385 1443

HT-Industry 949 1125 1179 1227 1284 1353

HT Railways (22kV) 556 601 637 667 704 749

HT Railways (100kV) 285 308 326 342 361 384

Sub Total 841 909 963 1009 1065 1133


Total 4,736 6,216 6,453 6,667 6,916 7,205

The category-wise projected sales of BEST for the period FY 2011-12 to FY 2015-16 is shown the following table

Table 37: Category-wise sales of BEST

Total Sales

2010-11 2011-12 2012-13 2013-14 2014-15 2015-16

LT –Residential (BPL) 0 0 0 0 0 0



units

532 548 564 581 599 617


units

146 150 155 160 164 169


units

343 353 364 375 386 398

Sub Total 1740 1792 1846 1901 1958 2017

LT –Commercial (0-20kW)

0-100 Units 336 363 392 423 457 494

(0-300 units) 90 97 104 113 122 132

( 300-500 units) 118 127 138 149 161 173

(500-1000 units) 333 360 389 420 453 489

LT –Commercial (>20 and

≤50 kW)

338 365 394 426 460 497

LT –Commercial (>50 kW) 629 679 734 793 856 924

Sub Total 1844 1992 2151 2323 2509 2709

LT-Industry (0-20 kW)

(0-300 units) 18 18 18 18 18 18

(300-500 units) 7 7 7 7 7 7

(500-1000 units) 11 11 11 11 11 11

(Above 1000 units) 22 22 22 22 22 22


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Total Sales

2010-11 2011-12 2012-13 2013-14 2014-15 2015-16

20 kW> and ≤100 kW 53 53 53 53 53 53

(>100 Kwan) 53 53 53 53 53 53

Sub Total 163 164 164 164 164 164

Electric Crematoriums 1 1 1 1 1 1


Hoarding

3 3 3 3 3 3

LT-Street Lights 29 29 29 29 29 29


HT-Housing 35 35 35 35 35 35

HT-Commercial 403 431 461 494 528 565

HT-Industry 137 137 137 137 137 137


Total 4390 4619 4862 5122 5399 5696


Power Purchase Cost The sales of each licensee as projected above have been used in conjunction with the T&D loss for each licensee to determine the quantity of power required by each licensee during FY11-12 to FY15-16.

For Rinfra-D for FY10-11 the T&D loss has been assumed as per projections submitted by Rinfra-D in its tariff petition for FY10-11. Thereafter, T&D loss for RInfra-D has been considered by assuming a nominal reduction of 0.20% per annum. For BEST, T&D loss has been assumed to reduce by 0.2% per annum from FY 10-11 levels. In case of TPC-D, for changeover sales, loss of 9% has been assumed on LT sales and 1.5% on HT sales, the distribution loss on direct sales and overall transmission loss has been considered as per its projections37. The total power requirement of each licensee has been used to project the power purchase of the licensees during the control period.

The power purchase cost of each licensee has been calculated by employing certain assumptions regarding the quantity and average cost of power procured by it.

RInfra-D

The power purchase cost of RInfra-D has been projected With Key Enablers. RInfra-D has been assumed to procure power from RInfra-G, renewable sources, through medium term power purchase contract during FY 11-12 to FY 13-14 and through a long term contract during FY 14-15 to FY 15-16 and from short-term/bilateral sources of power as per the trajectory outlined in Table 26. Rinfra-D has already entered into medium power purchase agreement and details have been provided in Table 27: Enabler II new medium term and long term PPA‟s .

The quantity of net generation from RInfra-G available to RInfra-D for each year from FY11-12 to FY15-16 has been taken at the same level as approved for RInfra-G in its tariff order for FY10-11. The average cost of power purchase of the power available from RInfra-G has been taken at the average cost of power during FY10-11, escalated by 5% each year.

The quantity of power purchased from renewable sources has been considered as per the RPO obligation that must be fulfilled by the licensee. The average cost of power purchase from renewable sources of power for RInfra-D has been considered at the average cost of power from renewable sources during FY10-11 and has been escalated by 5% for each year considering past trends.

37 As per Case no 20 of 2011


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Table 38: Power Purchase Cost and Quantity of RInfra-D

Particulars Quantity (MU)

FY 09-10

(Actual)

FY 10-11 FY 11-12 FY 12-13 FY 13-14 FY14-15 FY15-16

Rinfra-G 3915 3786 3786 3786 3786 3786 3786

TPC-G 2942 1660 - - - - -

Outside Licence area

sale

External

Purchase/Short-term

2720 2640 374 125 416 439 464

RPS 611 238 523 631 749 790 835

WPCL - - 374 1936 1936 - -

Vidharbha Industries - - 523 998 998 - -

Abhijeet MADC - - 1822 410 410 - -

Long Term Power

Purchase

- - - - - 3767 4190

Other Medium-Term

purchase

- - 662 - 26 - -

Total 10188 8325 7474 7885 8320 8783 9275

Particulars Cost (Rs. Crs)

FY 09-10

(Actual)

FY 10-11 FY 11-12 FY 12-13 FY 13-14 FY14-15 FY15-16

Rinfra-G 966 981 1030 1081 1136 1192 1252

TPC-G 1091 616 0 0 0 0 0

Outside Licence area

sale

External

Purchase/Short-term 1904 1611 178 56 177 176 185

RPS 223 92 212 268 335 371 411

WPCL 996 952 779

Vidarbha Industries 0 432 413

Abhijeet MADC 159 197 178

Long Term Power

Purchase 1319 1467

Other Medium Term

purchase 314 0 11

Total 4184 3299 2888 2987 3028 3057 3315

TPC-D TPC-D procures power for its license area primarily from TPC-G, renewable sources and short-term/bilateral power purchase.

For the period, FY 11-12 to FY 15-16, out of the total installed capacity of 2027 MW, 932 MW has been allocated to BEST and 687 MW plus an additional 198MW has been assumed to be available to TPC-D (as per order on Case 20 of 2011). The net generation of TPC-G and quantity of power available to TPC-D has been calculated at 85% PLF for the non-renewable source based plants of TPC-G and has been considered at the level of FY10-11 for the hydel power plants of TPC-G. The average cost of power from TPC-G has been taken as per APR order of FY10-11 of TPC-D and has been escalated by 5% each year.

Any further requirement of power by TPC-D has been assumed to be met through a medium/long term power purchase agreement such that the short-term power requirement of TPC-D is not more than 5% of the total power purchase requirement of TPC-D.

The quantity of power purchased from renewable sources has been considered as per the RPO obligation that must be fulfilled by the licensee. The average cost of power purchase from renewable sources of power for TPC-D has been considered at the rate approved by the Commission in the tariff order for FY 10-11 for the licensee and has been escalated by 5% each year considering past trends.


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Table 39: Power Purchase Cost and Quantity of TPC-D


FY 09-10 FY 10-11 As

per TO

FY 11-12 FY 12-13 FY 13-14 FY14-15 FY15-16

TPC-G: Existing Units 2932 3715 3715 3715 3715 3715 3715

Additional Power Req

from TPC-D

1474 1474 2075 1474 1474

Short-term 120 307 341 354 366 380 396

Pool Purchase -183

RPS Obligation 87 257 477 567 659 684 713

Outside Licence Area

sale and Banking Return

-28

Medium Term Power 811 974 1110

Long- Term Purchase

Agreement

0 0 1351 1621

Total 2928 4279 6819 7084 7325 7605 7919

Particulars Cost (Rs. Crs)

FY 09-10 FY 10-11 As

per TO

FY 11-12 FY 12-13 FY 13-14 FY14-15 FY15-16

TPC-G: Existing Units 1121 1397 1467 1540 1617 1698 1783

Additional Power Req

from TPC-D

582 611 642 674 707

Short-term 56 146 162 159 156 152 158

Pool Purchase -93

RPS Obligation 33 101 197 246 300 327 358

Outside Licence Area

sale and Banking Return

-21 -

Medium Term Power 385 438 472

Long- Term Purchase

Agreement

473 567

Total 1097 1644 2793 2994 3187 3324 3574

BEST The power purchase requirement of BEST is likely to be met completely by the power available to it from TPC-G and renewable sources for FY11-12 to FY 15-16.

The cost of power from TPC-G has been taken as per APR order of FY10-11 of BEST and has been escalated at 5% for each year.

The quantity of power purchased from renewable sources has been considered as per the RPO obligation that must be fulfilled by the licensee. The average cost of power purchase from renewable sources of power for BEST has been considered at the rate approved by the Commission in the tariff order for FY 10-11 tariff order for the licensee and has been escalated by 5% each year considering the past trends.


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Table 40: Power Purchase Cost and Quantity of BEST


FY 09-10

(Actual)

FY 10-11 FY 11-12 FY 12-13 FY 13-14 FY14-15 FY15-16

TPC - G (Thermal+Hydel) 4386 4741 5026 5026 5026 5026 5026

Unit 8 TPC-G 635 634 674 674 674 674 674

Pool Purchase/banking -742

RPS 186 305 375 450 532 559 580

Short-term 266 -583 -723 -529 -324 -46 165

Total 4731 5098 5351 5620 5907 6212 6538

Particulars Cost (Rs.)

FY 09-10

(Actual)

FY 10-11 FY 11-12 FY 12-13 FY 13-14 FY14-15 FY15-16

TPC - G (Thermal+Hydel) 1785 1825 2032 2133 2240 2352 2469

Unit 8 TPC-G 176 219 244 256 269 283 297

Pool Purchase /banking -481

RPS 96 116 150 189 235 259 286

Short-term 162 -292 -343 -238 -138 -18 100

Total 1737 1869 2082 2340 2606 2875 3153

The following table summarizes the power purchase cost projected for each licensee during the period FY11-12 to FY15-16.

Table 41: Projected Power Purchase Cost (Rs. Crs)

Licensee Power Purchase (Rs. Crs)

FY 11-12 FY 12-13 FY 13-14 FY14-15 FY15-16

RInfra-D 2888 2987 3028 3057 3315

TPC-D 2793 2994 3187 3324 3574

BEST 2082 2340 2606 2875 3153


Transmission Charges/SLDC Charges/Standby Charges Transmission Charges/SLDC Charges/ Standby Charges are shared among the utilities in the ratio of their

share in coincident peak demand. The projections for the same have been done considering the overall growth

in the expenses. Thereafter, the apportionment is done among the three utilities based on the historical ratio

and changing distribution scenario.

Table 42: Projected Transmission Charges/SLDC Charges/Standby Charges (Rs.Crs)

Licensee Transmission Charges/SLDC Charges/ Standby Charges (Rs.

Crs)

FY 11-12 FY 12-13 FY 13-14 FY14-15 FY15-16

RInfra-D 404.56 412.84 421.29 429.91 438.71

TPC-D 198.15 202.21 206.35 210.57 214.88

BEST 222.92 227.48 232.14 236.89 241.74


PwC Page 68 of 80

Operation and Maintenance Cost

The O&M cost has been projected by considering the past four year CAGR, and YoY growth. Apart from this the

O&M cost per unit of TPC-D has been escalated by a higher percentage owing to the fact that the changeover

sales will result in the rise of O&M cost beyond the normal historical increase. For RInfra-D the O&M cost has

been flattened out over the time period due to the fact that though the changeover would happen but it would

not result in the fall in O&M costs as these costs are relatively inelastic in nature. The table below shows the

Operation and Maintenance cost of each distribution licensee.

Table 43: Projected Operation & Maintenance Cost

Licensee Operation and Maintenance Cost (Rs.Crs)

FY 11-12 FY 12-13 FY 13-14 FY14-15 FY15-16

RInfra-D 590.39 636.74 686.96 741.39 800.41

TPC-D 117.09 127.63 139.10 151.51 165.73

BEST 301.33 329.89 361.41 396.23 434.70

Capital Expenditure Related Expenses The expenses which have an affiliation to the capital expenditure (capex) have been combined under this head.

Expenses like Depreciation, Interest Cost and Return on Equity has been combined here. Like in case of O&M

charges, past 5 year CAGR, 4 year CAGR and year on year growth of the capital related expenses has been

analyzed to project the future expenses. In case of RInfra-D, the growth in the capex related expenses has been

considered at a nominal rate. In case of TPC-D, the capex related expenses have been assumed to have an

increasing trend because of the changeover consumer and therefore, rise in the building up of new network to

cater those consumers. In case of BEST, the assumed growth is based on the 4 year CAGR and has been kept

constant thereafter. The table below shows the projected capex related expenses of each distribution licensee.

Table 44: Projected Capex Related Expenses (Rs. Crs)

Licensee Capex Related Expenses

FY 11-12 FY 12-13 FY 13-14 FY14-15 FY15-16

RInfra-D 427.86 436.42 445.15 458.50 472.26

TPC-D 105.30 126.36 145.31 167.11 192.18

BEST 199.89 209.88 220.38 231.40 242.97

Provision for Bad Debts and Other Expenses Generally, a fixed percentage of revenue is assigned towards bad debts. The provision for bad debts has

therefore, been projected as a percentage of ARR38. Analysing the past trends the Provision of Bad debts is

approximately 0.1% of ARR. The same has been assumed for projecting the provision for bad debts.

Table 45: Projected Provision for Bad Debts (Rs. Crs)

Licensee Provision for Bad Debts (Rs. Crs)

FY 11-12 FY 12-13 FY 13-14 FY14-15 FY15-16

RInfra-D 3.86 4.00 4.08 4.16 4.45

TPC-D 3.17 3.40 3.62 3.77 4.05

38 The inherent assumption is that ARR equals revenue


PwC Page 69 of 80

BEST 0.044 0.048 0.053 0.058 0.064

Other Expenses include contingency reserves, income tax and return as interest on internal funds. Other

expenses have been projected as a percentage of ARR. The historical trend of the expenses as a percentage of

ARR was analysed to project the expenses for the future.

Table 46: Projected Other Expenses (Rs. Crs)

Licensee Other Expenses

FY 11-12 FY 12-13 FY 13-14 FY14-15 FY15-16

RInfra-D 42.92 44.39 45.30 46.18 49.41

TPC-D 52.88 56.67 60.32 62.80 67.49

BEST 69.53 77.13 85.00 93.06 101.45

Income from Wheeling Charges Income from wheeling charges in the context of Mumbai refers to charge levied on the consumers who use the

distribution network of one licensee to wheel electricity of another licensee. With the operationalization of

parallel operation licensee in Mumbai this component has seen an increase. The changeover consumers who are

being supplied electricity by TPC-D using RInfra-D network have to pay for wheeling charges which are in

addition to the energy and demand charges of TPC-D. For projecting the wheeling charges, Rs.0.72 per unit39

has been considered with an escalation of 3% year on year. Also no changeover of consumers has been

considered from BEST to TPC-D. This is essentially because in the past no change over has happened from

BEST to TPC-D.

Table 47: Projected Income from Wheeling Charges (Rs. Crs)

Licensee Income from Wheeling Charges (Rs. Crs)

FY 11-12 FY 12-13 FY 13-14 FY14-15 FY15-16

RInfra-D 243.57 255.89 268.80 282.42 296.70

TPC-D 243.57 255.89 268.80 282.42 296.70

Amortization of past gap The approved uncovered gaps of the past have been amortized in case of RInfra-D and TPC-D over five year

period. The table below shows the projected gap amortization trajectory of the distribution licensees.

Table 48: Projected amortization of past gap (Rs. Crs)

Licensee Amortization of Gap (Rs. Crs)

FY 11-12 FY 12-13 FY 13-14 FY14-15 FY15-16

RInfra-D 275 275 275 275 275

TPC-D 26.33 26.33 26.33

After projecting all the above components, the ARR for all the years has been arrived at. The projected ARR for

the distribution licensees has been provided below.

39 As per Tariff order of FY 10-11 of TPC-D


PwC Page 70 of 80

Table 49: Projected ARR (Rs. Crs)

Licensee Projected ARR (Rs. Crs)

FY 11-12 FY 12-13 FY 13-14 FY14-15 FY15-16

RInfra-D 4292 4431 4505 4598 4933

TPC-D 3525 3771 4000 4162 4481

BEST 2781 3082 3385 3700 4032


PwC Page 71 of 80

Annexure IV: Scenarios

Table 50: Scenario I- ABR (Rs./kWh) for the three distribution licensees

FY 11 FY 12 FY 13 FY 14 FY 15 FY 16

TPC-D

BEST

Rinfra

TPC-D

BEST

Rinfra

TPC-D

BEST

Rinfra

TPC-D

BEST

Rinfra

TPC-D

BEST

Rinfra

TPC-D

BEST

Rinfra

LT Customers

LT Residential

LT I Residential (BPL)

0.4 0.4 0.4 0.4 0.40 0.40 0.40 0.40 0.40 0.40 0.40 0.40 0.40 0.40 0.40 0.40 0.40 0.40

- S1 (0-100 units) 1.76 1.66 3.11 1.95 1.76 3.21 2.02 1.88 2.89 2.07 1.99 2.63 2.07 2.05 2.50 2.14 2.11 2.50

- S2 (101-300 units)

3.29 3.72 6.04 3.65 3.87 6.23 3.77 4.13 5.61 3.87 4.29 5.39 3.87 4.42 4.97 4.01 4.54 4.90

- S3 (> 301-500 Units)

4.97 5.66 9.48 5.52 5.88 9.78 5.70 6.17 9.29 5.84 6.40 8.92 5.84 6.60 8.59 6.05 6.78 8.64

- S4 (Above 500 units

5.71 7.00 10.83 6.34 7.28 11.17 6.54 7.63 10.62 6.71 7.92 10.19 6.71 8.17 9.81 6.95 8.39 9.87

LT Commercial

- Upto 20 kW 4.93 6.65 8.56 5.47 6.91 8.83 5.65 7.25 8.83 5.79 7.52 8.48 5.79 7.76 8.16 6.00 7.97 8.21

- > 20 kW & < 50kW

5.47 8.25 10.82 6.07 8.58 11.16 6.27 8.99 11.16 6.43 9.33 10.71 6.43 9.62 10.31 6.66 9.89 10.38

- > 50kW 5.53 8.44 11.41 6.14 8.77 11.77 6.34 9.20 11.77 6.50 9.55 11.30 6.50 9.84 10.87 6.73 10.11 10.95

LT Industry

LT Industry < 20 kW

4.80 6.08 8.01 5.33 6.32 8.26 5.50 6.62 7.85 5.64 6.87 7.54 5.64 7.09 7.26 5.84 7.28 7.30

LT Industry > 20kW

5.56 6.54 7.82 6.17 6.80 8.38 6.37 7.13 8.38 6.54 7.40 8.38 6.54 7.63 8.38 6.77 7.84 8.43


14.09 12.10 18.1 15.65 12.58 18.67 16.15 13.19 18.67 16.56 13.69 18.67 16.56 14.11 18.67 17.15 14.50 18.79

LT Streetlights 5.50 5.91 8.8 6.11 6.14 9.08 6.30 6.44 9.08 6.46 6.68 9.08 6.46 6.89 9.08 6.70 7.08 9.13

LT Temporary Supply TSR

4.00 2.88 5.81 4.44 2.99 5.99 4.58 3.14 5.99 4.70 3.26 5.75 4.70 3.36 5.75 4.87 3.45 5.79


PwC Page 72 of 80

FY 11 FY 12 FY 13 FY 14 FY 15 FY 16

TPC-D

BEST

Rinfra

TPC-D

BEST

Rinfra

TPC-D

BEST

Rinfra

TPC-D

BEST

Rinfra

TPC-D

BEST

Rinfra

TPC-D

BEST

Rinfra

LT Temporary Supply TSO

11.19 8.78 15.88 12.43 9.13 16.38 12.82 9.57 16.38 13.15 9.93 15.72 13.15 10.24 15.72 13.62 10.52 15.83


4.00 2.66 3.83 4.44 2.77 3.95 4.58 2.90 3.95 4.70 3.01 3.95 4.70 3.10 3.80 4.87 3.19 3.83

HT Customers

HT Industry 5.45 5.72 7.88 6.05 5.95 8.28 6.25 6.24 8.28 6.41 6.47 8.28 6.41 6.67 8.28 6.63 6.85 8.34

HT Commercial 5.72 5.83 8.97 6.35 6.06 9.43 6.56 6.36 9.43 6.72 6.59 9.43 6.72 6.80 9.43 6.96 6.99 9.49

HT Group housing

4.37 3.61 5.42 4.85 3.75 5.70 5.01 3.94 5.70 5.14 4.08 5.70 5.14 4.21 5.70 5.32 4.33 5.73

HT Temporary Supply

10.00 8.2 13.00 11.11 8.53 13.67 11.46 8.94 13.67 11.75 9.28 13.67 11.75 9.56 13.67 12.17 9.83 13.76

HT - Railways

- 22/33 kV 5.32 NA NA 5.91 NA NA 6.10 NA NA 6.25 NA NA 6.25 NA NA 6.48 NA NA

- 100kV 5.16 NA NA 5.73 NA NA 5.91 NA NA 6.06 NA NA 6.06 NA NA 6.28 NA NA



PwC Page 73 of 80

Table 51: Scenario II- ABR (Rs./kWh) for the three distribution licensees

FY 11 FY 12 FY 13 FY 14 FY 15 FY 16

TPC-D

BEST

Rinfra

TPC-D

BEST

Rinfra

TPC-D

BEST

Rinfra

TPC-D

BEST

Rinfra

TPC-D

BEST

Rinfra

TPC-D

BEST

Rinfra

LT Customers

LT Residential


0.4 0.4 0.4 0.4 0.40 0.40 0.40 0.40 0.40 0.40 0.40 0.40 0.40 0.40 0.40 0.40 0.40 0.40

- S1 (0-100 units) 1.76 1.66 3.11 1.95 1.76 3.21 1.88 1.88 1.88 1.99 1.99 1.99 2.05 2.05 2.05 2.11 2.11 2.11

- S2 (101-300 units)

3.29 3.72 6.04 3.65 3.87 6.23 3.77 4.13 6.35 3.87 3.87 3.87 3.87 3.87 3.87 4.01 4.01 4.01

- S3 (> 301-500 Units)

4.97 5.66 9.48 5.52 5.88 9.78 5.70 6.17 9.78 5.85 6.40 10.27 5.85 6.65 9.70 6.02 6.84 9.70


5.71 7.00 10.83 6.34 7.28 11.17 6.54 7.63 11.17 6.72 7.92 11.73 6.72 8.23 11.08 6.92 8.46 11.08

LT Commercial

- Upto 20 kW 4.93 6.65 8.56 5.47 6.91 8.83 5.65 7.25 9.00 5.80 7.52 9.45 5.80 7.81 8.94 5.98 8.04 8.94

- > 20 kW & < 50kW

5.47 8.25 10.82 6.07 8.58 11.16 6.27 8.99 11.60 6.44 9.33 12.18 6.44 9.69 11.52 6.63 9.97 11.52

- > 50kW 5.53 8.44 11.41 6.14 8.77 11.77 6.34 9.20 12.24 6.51 9.55 12.85 6.51 9.92 12.14 6.70 10.20 12.14

LT Industry

LT Industry < 20 kW

4.80 6.08 8.01 5.33 6.32 8.26 5.50 6.62 8.43 5.65 6.87 8.85 5.65 7.14 8.36 5.82 7.34 8.36

LT Industry > 20kW

5.56 6.54 7.82 6.17 6.80 8.38 6.37 7.13 8.54 6.54 7.40 8.97 6.54 7.69 8.48 6.74 7.91 8.48


14.09 12.10 18.1 15.65 12.58 18.67 16.15 13.19 19.04 16.58 13.69 19.99 16.58 14.22 18.89 17.08 14.62 18.89

LT Streetlights 5.50 5.91 8.8 6.11 6.14 9.08 6.30 6.44 9.26 6.47 6.68 9.72 6.47 6.95 9.19 6.67 7.14 9.19


4.00 2.88 5.81 4.44 2.99 5.99 4.58 3.14 6.11 4.71 3.26 6.42 4.71 3.38 6.06 4.85 3.48 6.06


11.19 8.78 15.88 12.43 9.13 16.38 12.82 9.57 16.70 13.17 9.93 17.54 13.17 10.32 16.58 13.56 10.61 16.58


PwC Page 74 of 80

FY 11 FY 12 FY 13 FY 14 FY 15 FY 16

TPC-D

BEST

Rinfra

TPC-D

BEST

Rinfra

TPC-D

BEST

Rinfra

TPC-D

BEST

Rinfra

TPC-D

BEST

Rinfra

TPC-D

BEST

Rinfra


4.00 2.66 3.83 4.44 2.77 3.95 4.58 2.90 4.03 4.71 3.01 4.23 4.71 3.13 4.00 4.85 3.21 4.00

HT Customers

HT Industry 5.45 5.72 7.88 6.05 5.95 8.28 6.25 6.24 8.45 6.41 6.47 8.87 6.41 6.72 8.39 6.61 6.91 8.64

HT Commercial 5.72 5.83 8.97 6.35 6.06 9.43 6.56 6.36 9.62 6.73 6.59 10.10 6.73 6.85 9.54 6.93 7.05 9.83

HT Group housing

4.37 3.61 5.42 4.85 3.75 5.70 5.01 3.94 5.81 5.14 4.08 6.10 5.14 4.24 5.77 5.30 4.36 5.94

HT Temporary Supply

10.00 8.2 13.00 11.11 8.53 13.67 11.46 8.94 13.94 11.77 9.28 14.64 11.77 9.64 13.83 12.12 9.91 14.25

HT - Railways





PwC Page 75 of 80

Table 52: Scenario III- ABR (Rs./kWh) for the three distribution licensees

FY 11 FY 12 FY 13 FY 14 FY 15 FY 16

TPC-D

BEST

Rinfra

TPC-D

BEST

Rinfra

TPC-D

BEST

Rinfra

TPC-D

BEST

Rinfra

TPC-D

BEST

Rinfra

TPC-D

BEST

Rinfra

LT Customers

LT Residential


0.4 0.4 0.4 0.4 0.40 0.40 0.40 0.40 0.40 0.40 0.40 0.40 0.40 0.40 0.40 0.40 0.40 0.40

- S1 (0-100 units) 1.76 1.66 3.11 1.95 1.76 3.21 1.88 1.88 1.88 1.99 1.99 1.99 2.05 2.05 2.05 2.11 2.11 2.11

- S2 (101-300 units)

3.29 3.72 6.04 3.65 3.87 6.23 3.77 4.13 5.61 3.87 3.87 3.87 3.87 3.87 3.87 4.01 4.01 4.01

- S3 (> 301-500 Units)

4.97 5.66 9.48 5.52 5.88 9.78 5.70 6.17 9.29 5.84 6.40 8.92 5.84 6.60 8.59 6.05 6.78 8.64


5.71 7.00 10.83 6.34 7.28 11.17 6.54 7.63 10.62 6.71 7.92 10.19 6.71 8.17 9.81 6.95 8.39 9.87

LT Commercial

- Upto 20 kW 4.93 6.65 8.56 5.47 6.91 8.83 5.65 7.25 8.83 5.79 7.52 8.48 5.79 7.76 8.16 6.00 7.97 8.21

- > 20 kW & < 50kW

5.47 8.25 10.82 6.07 8.58 11.16 6.27 8.99 11.16 6.43 9.33 10.71 6.43 9.62 10.31 6.66 9.89 10.38

- > 50kW 5.53 8.44 11.41 6.14 8.77 11.77 6.34 9.20 11.77 6.50 9.55 11.30 6.50 9.84 10.87 6.73 10.11 10.95

LT Industry

LT Industry < 20 kW

4.80 6.08 8.01 5.33 6.32 8.26 5.50 6.62 7.85 5.64 6.87 7.54 5.64 7.09 7.26 5.84 7.28 7.30

LT Industry > 20kW

5.56 6.54 7.82 6.17 6.80 8.38 6.37 7.13 8.38 6.54 7.40 8.38 6.54 7.63 8.38 6.77 7.84 8.43


14.09 12.10 18.1 15.65 12.58 18.67 16.15 13.19 18.67 16.56 13.69 18.67 16.56 14.11 18.67 17.15 14.50 18.79

LT Streetlights 5.50 5.91 8.8 6.11 6.14 9.08 6.30 6.44 9.08 6.46 6.68 9.08 6.46 6.89 9.08 6.70 7.08 9.13


4.00 2.88 5.81 4.44 2.99 5.99 4.58 3.14 5.99 4.70 3.26 5.75 4.70 3.36 5.75 4.87 3.45 5.79


11.19 8.78 15.88 12.43 9.13 16.38 12.82 9.57 16.38 13.15 9.93 15.72 13.15 10.24 15.72 13.62 10.52 15.83


PwC Page 76 of 80

FY 11 FY 12 FY 13 FY 14 FY 15 FY 16

TPC-D

BEST

Rinfra

TPC-D

BEST

Rinfra

TPC-D

BEST

Rinfra

TPC-D

BEST

Rinfra

TPC-D

BEST

Rinfra

TPC-D

BEST

Rinfra


4.00 2.66 3.83 4.44 2.77 3.95 4.58 2.90 3.95 4.70 3.01 3.95 4.70 3.10 3.80 4.87 3.19 3.83

HT Customers

HT Industry 5.45 5.72 7.88 6.05 5.95 8.28 6.25 6.24 8.28 6.41 6.47 8.28 6.41 6.67 8.28 6.63 6.85 8.34

HT Commercial 5.72 5.83 8.97 6.35 6.06 9.43 6.56 6.36 9.43 6.72 6.59 9.43 6.72 6.80 9.43 6.96 6.99 9.49

HT Group housing

4.37 3.61 5.42 4.85 3.75 5.70 5.01 3.94 5.70 5.14 4.08 5.70 5.14 4.21 5.70 5.32 4.33 5.73

HT Temporary Supply

10.00 8.2 13.00 11.11 8.53 13.67 11.46 8.94 13.67 11.75 9.28 13.67 11.75 9.56 13.67 12.17 9.83 13.76

HT - Railways





PwC Page 77 of 80

Table 53: Scenario IV- ABR (Rs./kWh) for the three distribution licensees

FY 11 FY 12 FY 13 FY 14 FY 15 FY 16

TPC-D

BEST

Rinfra

TPC-D

BEST

Rinfra

TPC-D

BEST

Rinfra

TPC-D

BEST

Rinfra

TPC-D

BEST

Rinfra

TPC-D

BEST

Rinfra

LT Customers

LT Residential


0.4 0.4 0.4 0.4 0.40 0.40 0.40 0.40 0.40 0.40 0.40 0.40 0.40 0.40 0.40 0.40 0.40 0.40

- S1 (0-100 units) 1.76 1.66 3.11 1.95 1.76 3.21 1.88 1.88 1.88 1.99 1.99 1.99 2.05 2.05 2.05 2.11 2.11 2.11

- S2 (101-300 units)

3.29 3.72 6.04 3.65 3.87 6.23 3.77 3.77 3.77 3.87 3.87 3.87 3.87 3.87 3.87 4.01 4.01 4.01

- S3 (> 301-500 Units)

4.97 5.66 9.48 5.52 5.88 9.78 5.70 6.17 9.29 5.84 5.84 5.84 5.84 5.84 5.84 6.05 6.05 6.05


5.71 7.00 10.83 6.34 7.28 11.17 6.54 7.63 10.62 6.71 6.71 6.71 6.71 6.71 6.71 6.95 6.95 6.95

LT Commercial

- Upto 20 kW 4.93 6.65 8.56 5.47 6.91 8.83 5.65 7.25 8.83 5.79 7.52 8.48 5.79 5.79 5.79 6.00 6.00 6.00

- > 20 kW & < 50kW

5.47 8.25 10.82 6.07 8.58 11.16 6.27 8.99 11.16 6.43 9.33 10.71 6.43 6.43 6.43 6.66 6.66 6.66

- > 50kW 5.53 8.44 11.41 6.14 8.77 11.77 6.34 9.20 11.77 6.50 9.55 11.30 6.50 6.50 6.50 6.73 6.73 6.73

LT Industry

LT Industry < 20 kW

4.80 6.08 8.01 5.33 6.32 8.26 5.50 6.62 7.85 5.64 6.87 7.54 5.64 5.64 5.64 5.84 5.84 5.84

LT Industry > 20kW

5.56 6.54 7.82 6.17 6.80 8.38 6.37 7.13 8.38 6.54 7.40 8.38 6.54 6.54 6.54 6.77 6.77 6.77


14.09 12.10 18.1 15.65 12.58 18.67 16.15 13.19 18.67 16.56 13.69 18.67 14.11 14.11 14.11 14.50 14.50 14.50

LT Streetlights 5.50 5.91 8.8 6.11 6.14 9.08 6.30 6.44 9.08 6.46 6.68 9.08 6.46 6.46 6.46 6.70 6.70 6.70


4.00 2.88 5.81 4.44 2.99 5.99 4.58 3.14 5.99 4.70 3.26 5.75 3.36 3.36 3.36 3.45 3.45 3.45


11.19 8.78 15.88 12.43 9.13 16.38 12.82 9.57 16.38 13.15 9.93 15.72 10.24 10.24 10.24 10.52 10.52 10.52


PwC Page 78 of 80

FY 11 FY 12 FY 13 FY 14 FY 15 FY 16

TPC-D

BEST

Rinfra

TPC-D

BEST

Rinfra

TPC-D

BEST

Rinfra

TPC-D

BEST

Rinfra

TPC-D

BEST

Rinfra

TPC-D

BEST

Rinfra


4.00 2.66 3.83 4.44 2.77 3.95 4.58 2.90 3.95 4.70 3.01 3.95 3.10 3.10 3.10 3.19 3.19 3.19

HT Customers

HT Industry 5.45 5.72 7.88 6.05 5.95 8.28 6.25 6.24 8.28 6.41 6.47 8.28 6.41 6.67 8.28 6.63 6.63 6.63

HT Commercial 5.72 5.83 8.97 6.35 6.06 9.43 6.56 6.36 9.43 6.72 6.59 9.43 6.72 6.80 9.43 6.96 6.96 6.96

HT Group housing

4.37 3.61 5.42 4.85 3.75 5.70 5.01 3.94 5.70 5.14 4.08 5.70 5.14 4.21 5.70 4.33 4.33 4.33

HT Temporary Supply

10.00 8.2 13.00 11.11 8.53 13.67 11.46 8.94 13.67 11.75 9.28 13.67 11.75 9.56 13.67 9.83 9.83 9.83

HT - Railways

- 22/33 kV 5.32 NA NA 5.91 NA NA 6.10 NA NA 6.25 NA NA 6.25 NA NA 6.48 NA NA - 100kV 5.16 NA NA 5.73 NA NA 5.91 NA NA 6.06 NA NA 6.06 NA NA 6.28 NA NA



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