KARNATAKA ELECTRICITY REGULATORY COMMISSION TARIFF ORDER 2016 HESCOM ANNUAL PERFORMANCE REVIEW FOR FY15 ANNUAL REVENUE REQUIREMENT FOR FY17-19

Transcription

1 KARNATAKA ELECTRICITY REGULATORY COMMISSION TARIFF ORDER 2016 OF HESCOM ANNUAL PERFORMANCE REVIEW FOR FY15 & ANNUAL REVENUE REQUIREMENT FOR FY17-19 & REVISION OF RETAIL SUPPLY TARIFF FOR FY17 30 th March th and 7 th Floor, Mahalaxmi Chambers 9/2, M.G. Road, Bengaluru Phone: / Fax : Website: kerc-ka@nic.in

2 C O N T E N T S CHAPTER Page No. 1 Introduction Hubli Electricity Supply Company Ltd., HESCOM at a Glance Number of Consumers, Sales in MU and Revenue 6 detail of HESCOM 2 Summary of Filing and Tariff Determination 7 Process 2.0 Background for Current Filing Preliminary Observations of the Commission Public Hearing Process Consultation with the Advisory Committee of the 9 Commission 3 Public Consultation Suggestions / Objections 10 and Replies 3.1 List of Persons who filed written objections List of persons who made oral submission in 11 public hearing 4 Annual Performance Review for FY HESCOM s Application for APR for FY HESCOM s Submission HESCOM s Financial Performance as per 13 Audited Accounts for FY Sales for FY Distribution Losses for FY Power Purchase RPO Compliance by HESCOM for FY Operation and Maintenance Expenses Depreciation Capital Expenditure for FY Prudence Check of FY Interest and Finance Charges Interest on Working Capital Interest on Consumer Deposits Other Interest and Finance Charges Other Debits Net Prior Period Credits / Charges Return on Equity Income Tax Other Income Fund Towards Consumer Relations / Consumer 44 Education 4.3 Abstract of Approved Revised ARR for FY Gap In Revenue for FY Annual Revenue Requirement for FY ii

3 HESCOM s Filing 5.1 Annual Performance Review for FY15 & FY Annual Revenue Requirement for FY Capital Investments for FY Sales Forecast for FY Distribution Losses for FY Power Purchase for FY Sources of Power HESCOM s Power Purchase Cost and 73 Transmission Charges RPO Target for FY O & M Expenses for FY Depreciation Interest on Capital Loans Interest on Working Capital Interest on Consumer Security Deposit Interest on belated payment of power purchase 89 cost Other Debits Return on Equity Other Income Fund towards Consumer Relations / Consumer 93 Education 5.3 Treatment of Regulatory Asset Abstract of ARR for FY Segregation of ARR into ARR for Distribution 95 Business and ARR for Retail Supply Business 5.6 Gap in Revenue for FY Application for Additional Revenue Requirement 98 for FY17 6 Determination of Tariff for FY HESCOM s Proposal and Commission Analysis for 100 FY Tariff Application Statutory Provisions Guiding Determination of 100 Tariff 6.3 Consideration for Tariff setting New Tariff Proposals by HESCOM Revenue of Existing Tariff and Deficit for FY Other Issues Tariff for Green Power Determination of Wheeling Charges Wheeling within HESCOM area Wheeling of Energy using Transmission Network 139 or network of more than one licensee Charges for Wheeling of energy by RE sources 140 (non REC route) to Consumers in the State Charges for Wheeling Energy by RE sources Wheeling energy from the State to a consumer / other outside the State and for those opting for 140 iii

4 renewable energy certificate 6.7 Other Tariff Related issues Cross Subsidy Levels for FY Effect of Revised Tariff Summary of the Tariff Order Commission s Order 147 APPENDIX 148 APPENDIX I 185 iv

5 LIST OF TABLES Table No. Content Page No. 4.1 Revised ARR for FY15 HESCOM s Submission Financial Performance of HESCOM for FY HESCOM s Accumulated Profit / Losses Approved and Actual Sales - FY Incentive for loss reduction for FY HESCOM s Power Purchase for FY RPO Compliance as submitted by HESCOM for FY O & M Expenses for FY15 HESCOM s Submission Approved O & M Expenses as per Tariff Order dated O & M Expenses of HESCOM as per Annual Audited 26 Accounts for FY Allowable O & M expenses for FY Capital Expenditure for FY Approved Vs Actual Capital Investment Gist of Prudence check findings for FY Summary of Works having cost overrun Summary of Works having Time overrun Details of Amounts disallowed in APR FY Allowable Interest on Loans FY Allowable Interest on Working Capital for FY Allowable Interest on Finance Charges Allowable Other Debits Allowable Return on Equity Approved Revised ARR for FY15 as per APR Proposed ARR for FY Proposed Capex for the control period Category wise Approved number of Installations Category wise approved energy sales Projected Distribution Losses FY17-19 HESCOM s 66 Submission 5.6 Approved & Actual Distribution Losses FY10 to FY Approved Distribution Losses for FY Requirement of Electricity as filed by Licensees Energy Requirement as filed by HESCOM Power Purchase requirement approved for the 69 Control Period FY17 to FY Consolidated Power Purchases requirement for FY Consolidated Power Purchases requirement for FY Consolidated Power Purchases requirement for FY Abstract of Power Purchase allowed for ESCOMs for 73 the control period FY17 to FY Power Purchase Cost of HESCOM for FY17 75 v

6 5.16 Power Purchase Cost of HESCOM for FY Power Purchase Cost of HESCOM for FY O & M Expenses for FY17-19 HESCOM s Proposal Computation of Inflation Index for FY Approved O & M expenses for FY Depreciation FY17-19 HESCOM s Proposal Approved Depreciation for FY Interest on Capital Loans HESCOM s Proposal Approved Interest on Capital Loans for FY Interest on Working Capital HESCOM s Submission Approved Interest on Working Capital Loans for FY Interest on Consumer Security Deposits for FY HESCOM s Proposal 5.28 Approved Interest on Consumer Security Deposit for 89 FY Approved Interest and finance charges for FY Status of Debt Equity Ratio for FY Approved Return on Equity for FY Other Income for FY17-19 HESCOM s Proposal Approved Other Income for FY Approved ARR for FY Approved Segregation of ARR FY Approved Revised ARR for Distribution Business FY Approved ARR for Retail Supply Business FY Revenue Gap for FY Revenue Deficit for FY Wheeling Charges 137 vi

7 LIST OF ANNEXURES SL.NO. DETAILS OF ANNEXURES Page No. I Total Approved Power Purchase Quantum and Cost 206 of all ESCOMs for FY17 II Approved Power Purchase quantum and cost of 212 HESCOM for FY17 III Proposed and approved Revenue for FY IV Electricity Tariff vii

8 ABBREVIATIONS AAD AEH ABT A & G ARR ATE BBMP BDA BESCOM BMP BST BWSSB CAPEX CCS CERC CEA CESC CPI CWIP DA DCB DPR EA EC ERC ESAAR ESCOMs FA FKCCI FR FoR FY GESCOM GFA GoI GoK GRIDCO HESCOM HP HRIS ICAI IFC IW Advance Against Depreciation All Electric Home Availability Based Tariff Administrative & General Expenses Annual Revenue Requirement Appellate Tribunal for Electricity Bruhut Bangalore Mahanagara Palike Bangalore Development Authority Bangalore Electricity Supply Company Bangalore Mahanagara Palike Bulk Supply Tariff Bangalore Water Supply & Sewerage Board Capital Expenditure Consumer Care Society Central Electricity Regulatory Commission Central Electricity Authority Chamundeshwari Electricity Supply Corporation Consumer Price Index Capital Work in Progress Dearness Allowance Demand Collection & Balance Detailed Project Report Electricity Act Energy Charges Expected Revenue From Charges Electricity Supply Annual Accounting Rules Electricity Supply Companies Financial Adviser Federation of Karnataka Chamber of Commerce & Industry Feasibility Report Forum of Regulators Financial Year Gulbarga Electricity Supply Company Gross Fixed Assets Government Of India Government Of Karnataka Grid Corporation Hubli Electricity Supply Company Horse Power Human Resource Information System Institute of Chartered Accountants of India Interest and Finance Charges Industrial Worker viii

9 IP SETS KASSIA KEB KER Act KERC KM/Km KPCL KPTCL KV KVA KW KWH LDC MAT MD MESCOM MFA MIS MoP MU MVA MW MYT NFA NLC NCP NTP O&M P & L PLR PPA PRDC REL R & M ROE ROR ROW RPO SBI SCADA SERCs SLDC SRLDC STU TAC TCC Irrigation Pump Sets Karnataka Small Scale Industries Association Karnataka Electricity Board Karnataka Electricity Reform Act Karnataka Electricity Regulatory Commission Kilometre Karnataka Power Corporation Limited Karnataka Power Transmission Corporation Limited Kilo Volts Kilo Volt Ampere Kilo Watt Kilo Watt Hour Load Despatch Centre Minimum Alternate Tax Managing Director Mangalore Electricity Supply Company Miscellaneous First Appeal Management Information System Ministry of Power Million Units Mega Volt Ampere Mega Watt Multi Year Tariff Net Fixed Assets Neyveli Lignite Corporation Non Coincident Peak National Tariff Policy Operation & Maintenance Profit & Loss Account Prime Lending Rate Power Purchase Agreement Power Research & Development Consultants Reliance Energy Limited Repairs and Maintenance Return on Equity Rate of Return Right of Way Renewable Purchase Obligation State Bank of India Supervisory Control and Data Acquisition System State Electricity Regulatory Commissions State Load Despatch Centre Southern Regional Load Dispatch Centre State Transmission Utility Technical Advisory Committee Total Contracted Capacity ix

10 T&D TCs TR VVNL WPI WC Transmission & Distribution Transformer Centres Transmission Rate Visvesvaraya Vidyuth Nigama Limited Wholesale Price Index Working Capital x

11 KARNATAKA ELECTRICITY REGULATORY COMMISSION, BENGALURU Dated this 30 th day of March, 2016 Order on HESCOM s Annual Performance Review for FY15 & Annual Revenue Requirement for FY17-19 & Revision of Retail Supply Tariff for FY17 In the matter of: Application of HESCOM in respect of the Annual Performance Review for FY15, Annual Revenue Requirement for FY17-19 and Revision of Retail Supply Tariff for FY17, under Multi Year Tariff framework. Present: Shri M.K.Shankaralinge Gowda Chairman Shri H.D.Arun Kumar Shri D.B.Manival Raju Member Member O R D E R The Hubli Electricity Supply Company Ltd., (hereinafter referred to as HESCOM) is a Distribution Licensee under the provisions of the Electricity Act 2003, and has, on , filed the following applications for consideration and orders: a) Review of Annual Performance for FY15 and approval of revised ARR thereon. b) Approval of ARR for FY17-19 xi

12 c) Approval for revision of Retail Supply Tariff, for the financial year (FY17) In exercise of the powers conferred under Sections 62, 64 and other provisions of the Electricity Act, 2003, read with KERC (Terms and conditions for Determination of Tariff for Distribution and Retail Sale of Electricity) Regulations 2006, and other enabling Regulations, the Commission has considered the applications and the views and objections submitted by the consumers and other stakeholders. The Commission s decisions are given in this order, Chapter wise. xii

13 CHAPTER 1 INTRODUCTION 1.0 Hubli Electricity Supply Company Ltd.,: Hubli Electricity Supply Company Ltd., (HESCOM) is a Distribution Licensee under Section 14 of the Electricity Act, 2003 (hereinafter referred to as the Act). HESCOM is responsible for purchase of power, distribution and retail supply of electricity to its consumers and also providing infrastructure for open access, Wheeling and Banking in its area of operation which includes seven Districts of the State as indicated below: 1. Bagalkot 2. Belgaum 3. Bijapur 4. Dharwad 5. Gadag 6. Haveri 7. Uttara Kannada HESCOM is a registered company under the Companies Act, 1956, incorporated on 30 th April, HESCOM commenced its operations on 1 st June, xiii

14 O&M Zones O&M Circles O&M Divisions Hubli Urban Hubli Rural Hubli Circle Dharwad Urban Dharwad Rural Hubli Zone Gadag Haveri Haveri Circle Ranebennur Sirsi Sirsi Circle Karwar Belgaum Urban Belgaum Rural Belgaum Circle Bailahongal Ghataprabha Chikkodi Chikkodi Circle Athani BelgaumZone Raibagh Bijapur Bijapur Circle Indi Jamakandi Bagalkot Bagalkot Circle Basavana Bagewadi Mudhol xiv

15 The O & M divisions of HESCOM are further divided into seventy eight sub-divisions. These sub-divisions are further divided into 255 O & M section offices. Section offices are the base level offices looking into the operation and maintenance of the distribution system in order to provide reliable and quality power supply to HESCOM s consumers. 1.1 HESCOM at a glance: The profile of the HESCOM is as indicated below: Sl. No. Particulars Statistics 1. Area Sq. km Districts Nos Taluks Nos Population Lakhs Consumers as on Lakhs Energy Sales for FY15 MU Zone Nos DTCs as on Nos Assets as on Rs. in Crores HT lines as on Ckt. kms LT lines as on Ckt. kms Total employees strength: A Sanctioned Nos B Working Nos Revenue Demand Rs. in Crores Revenue Collection Rs. in Crores Source: HESCOM Website/ Tariff Application / Audited Accounts for FY15 xv

16 1.2 Number of Consumers, Sales in MU and Revenue details of HESCOM in FY15 is as follows: CATEGORY No. of Installation HESCOM Sales in MU Revenue in Rs.Crs. Domestic Commercial Industrial Agriculture Others Total HRECS is one of the distribution licensees purchasing power from HESCOM as per the bulk supply tariff determined by the Commission. HRECS has filed separate application for approval of ARR and retail supply tariff for its distribution and supply area for the control period FY HESCOM has filed its application for approval of Annual Performance Review for FY15, Annual Revenue Requirement (ARR) for FY17-19 and revision of Retail Supply Tariff for FY17. HESCOM s application, the objections / views of stakeholders thereon and the Commission s decisions on the approval of Annual Performance Review for FY15, ARR for FY17-19 and revision of Retail Supply Tariff for FY17 are discussed in detail in the subsequent Chapters of this Order. xvi

17 CHAPTER 2 SUMMARY OF FILING & TARIFF DETERMINATION PROCESS 2.0 Background for Current Filing: The Commission in its Tariff Order dated 6 th May, 2013 had approved the ERC for FY14 to FY16 and the Retail Supply Tariff of HESCOM for FY14 under MYT principles for the control period of FY14 to FY16. HESCOM in its present application filed on 15 th December, 2015 has sought approval for the Annual Performance Review (APR) for FY15 based on the audited accounts, ARR for the fourth control period i.e. FY17-19 and revision of Retail Supply Tariff for FY Preliminary Observations of the Commission After a preliminary scrutiny of applications the Commission had communicated its observations to HESCOM on 1 st January, The preliminary observations were mainly on the following points: Capital Expenditure Sales Forecast Assessment of IP set consumption Power Purchase Issues pertaining to items of revenue and expenditure Other new proposals Compliance to Directives In response HESCOM has furnished its replies on 11 th January, The replies furnished by HESCOM are considered in the respective Chapters of this Order. Further, the Commission also held a validation meeting to discuss the proposals of HESCOM on 10 th February, xvii

18 2.2 Public Hearing Process: As per the Karnataka Electricity Regulatory Commission (Terms and Conditions for Determination of Tariff for Distribution and Retail Sale of Electricity) Regulations, 2006, read with the KERC Tariff Regulations, 2000, and KERC (General and Conduct of Proceedings) Regulations 2000, the Commission vide its letter dated 1 st January, 2016 treated the application of HESCOM as petition and directed HESCOM to publish the summary of its ARR and Tariff proposals in the newspapers calling for objections, if any, from interested persons. Accordingly, HESCOM has published the same in the following newspapers: Name of the News Paper Language Date of Publication INDIAN EXPRESS TIMES OF INDIA PRAJAVANI VIJAYAVANI English Kannada 17/1/2016 & 18/1/2016 HESCOM s application on APR of FY15, ARR for FY17-19 and revision of retail supply tariff for FY17 were also hosted on the web sites of HESCOM and the Commission for the ready reference and information of the general public. In response to the application of HESCOM, the Commission has received ten statements / letters of objections. HESCOM has furnished its replies to all these objections. The Commission has held a Public Hearing on 3 rd March, 2016 at Dharwad. The details of the written / oral submissions made by various stake holders and the responses from HESCOM thereon and Commissions views have been discussed in Chapter - 3 / Appendix to this Order. 2.3 Consultation with the Advisory Committee of the Commission: xviii

19 The Commission has also discussed the proposals of KPTCL and all ESCOMs in the State Advisory Committee meeting held on 10 th March, During the meeting the following important issues were also discussed: Performance of KPTCL / ESCOMs during FY15 Major items of expenditure of KPTCL / ESCOMs for FY17-19 Members of the Committee have offered valuable suggestions on the proposals. The Commission has taken note of these suggestions while passing the order. xix

20 CHAPTER 3 PUBLIC CONSULTATION SUGGESTIONS / OBJECTIONS & REPLIES 3.1 In pursuance of the provisions of section 64 of the Electricity Act, 2003, the Commission undertook the process of public consultation in order to obtain suggestions/views/objections from the interested stakeholders on the application for APR for FY15 and ERC, ARR and Retail supply Tariff for FY 17, FY18 and FY19 under the MYT Principles filed by HESCOM. In the written submissions as well as during the public hearing some Stake-holders and public have raised several objections to the Tariff Applications filed by HESCOM. The names of the persons who have filed written objections and made oral submissions are given below: List of persons who filed written objections:- Sl. Applicatio No n No. Name & Address of Objectors 1 HB-01 Sri Yagnanarayana M.N, General Secretary, Laghu Udyog Bharati Karnataka, Bengaluru. 2 HB-02 Sri G.G. Hedge, President Balakedarara Hitharakshaka Sangha, Sirsi. 3 HA-01 Sri S.K Hedge, Kumta Taluk Vidhyuth Balakedarara Hitharakshana Samithi, Kumta 4 HA-02 Sri Siddheshwar G Kammar, Hon. Gen. Secretary, Karnataka Chamber of Commerce & Industry, Hubballi. 5 HA-03 Shri R.K. Rangrej, Ex-President, Chairman, Electricity Sub- Committee, Gadag District Chamber of Commerce & Industry, Gadag. 6 HA-04 Shri. Shantilal Mostawal, Hon. Secretary, Karnataka Cotton Association, Hubballi 7 HA-05 Sri G.G. Hegde Kadekodi, President, Uttara Kannada District Chamber of Commerce and Agriculture, Sirsi. 8 HA-06 Sri Aravind K Pai, Kumta. 9 HA-07 Sri K.B. Arasappa, Hon. Gen. Secretary, KASSIA, Bengaluru. 10 HA-08 Sri Lokaraj, Secretary, Federation of Karnataka Chambers of Commerce and Industry, Bengaluru 11 AE-01 Sri P.N. Karanth, Kundapura. xx

21 12 AE-02 Sri Praveen Sood, IPS, Additional Director General of Police, Administration, Bengaluru 3.2 List of the persons, who made oral submissions during the Public Hearing, held on SL.No. Names & Addresses of Objectors 1 Sri G.G. Hedge Kadekodi for FKCCI, North Kanara District Chamber Sirsi, Consumer Protection Society, Sirsi & Karnataka Electricity Governance Network 2 Sri R.G. Joshi, Kumta 3 Sri Prabhakar Nagarmunchi, KASSIA, Bangalore. 4 Sri Aravind K Pai, Kumta 5 Sri S. K. Hedge, Kumta 6 Sri Siddeshwar Kammar & Sri A.S. Kulkarni, Karnataka Chamber of Commerce, Hubballi. 7 Sri Pramod Shanbhag, Shreyas Papers, Dandeli 8 Sri Basavaraj Ingalagi, Belagavu (Hosur Village). 9 Sri R.K. Rangrej, Gadag District Chamber of Commerce. 10 Sri Chethan Jain, I Ex. 11 Sri A.A. Thargar, Dharwad. 3.3 The gist of the objections, Replies by HESCOM and the Commission s Views is appended to this order in Appendix-1 xxi

22 CHAPTER 4 ANNUAL PERFORMANCE REVIEW FOR FY HESCOM s Application for APR for FY15: The HESCOM, in its application dated 15 th December, 2015, has sought approval of revised ARR in the Annual Performance Review (APR) for FY15, based on the Audited Accounts. The Commission in its letter dated 1 st January, 2016 had communicated its preliminary observations. The HESCOM, in its letter dated 11 th January, 2016 has furnished its repliesto the preliminary observations of the Commission. The Commission in its Multi Year Tariff (MYT) Order dated 6 th May, 2013 had approved the HESCOM s Annual Revenue Requirement (ARR) for FY14 FY16. Further, in its Tariff Order dated 12 th May, 2014, the Commission had approved the APR for FY13 and had revised the ARR for FY15 along with Retail Supply Tariff for FY15. The Annual Performance Review for FY15 based on the HESCOM s Audited Accounts is discussed in this Chapter. 4.1 HESCOM s Submission: The HESCOM has submitted its proposals for revision of ARR for FY15 based on the Audited Accounts as follows: Sl. No TABLE 4.1 Revised ARR for FY15 HESCOM s Submission Amount in Rs. Crores Particulars As Filed 1 Gen Bus in MU Interface in MU Distribution Losses in % 16.74% Sales in MU 4 Sales to other than IP & BJ/KJ Sales to IP & BJ/KJ Total Sales in MU Revenue at existing tariff in Rs Crs xxii

23 6 Revenue from tariff and Misc. Charges RE Subsidy Total Revenue Expenditure in Rs Crs 8 Power Purchase Cost Transmission charges of KPTCL SLDC Charges 9.94 Power Purchase Cost including cost of transmission Employee Cost 12 Repairs & Maintenance 13 Admin. & General Expenses Total O&M Expenses Depreciation Interest & Finance charges 15 Interest on Loans Interest on Working capital Interest on consumer deposits Other Interest & Finance charges Less interest & other expenses capitalised 0.00 Total Interest & Finance charges Other Debits (0.78) 21 Net Prior Period Debit/Credit Return on Equity Provision for taxation Other Income (8.08) Net ARR Considering the revenue of Rs Crores against a net ARR of Rs Crores, the HESCOM has reported surplus in revenue of Rs Crores for FY HESCOM s Financial Performance as per Audited Accounts for FY15: An overview of the financial performance of the HESCOM for FY15 as per their Audited Accounts is given below: xxiii

24 Sl. No. TABLE 4.2 Financial Performance of HESCOM for FY15 Particulars Amount in Rs.Crores FY15 Receipts 1 Revenue from Tariff and misc.charges Tariff Subsidy Total Revenue Expenditure 3 Power Purchase Cost Transmission charges of KPTCL SLDC Charges 9.94 Power Purchase Cost including cost of transmission O&M Expenses Depreciation Interest & Finance charges 8 Interest on Loans Interest on Working capital Interest on consumer deposits Interest on belated payment of power purchase cost Other Interest & Finance charges 2.47 Total Interest & Finance charges Other Debits (0.78) 14 Net Prior Period Debit/Credit Other income Net ARR As per the Audited Accounts, the HESCOM has earned a profit of Rs Crores for FY15. The profits / losses reported by the HESCOM in its audited accounts in the previous years are as follows: TABLE 4.3 HESCOM s Accumulated Profits / Losses Particulars Amount in Rs. Crs Accumulated losses as at the end of FY10 (659.08) Losses incurred in FY11 (64.70) Profit earned in FY Profit earned in FY xxiv

25 Losses incurred in FY14 (576.25) Profits earned in FY Accumulated losses as at the end of FY15 ( ) As seen from the above table, the accumulated losses are Rs Crores as at the end of FY15. Commission s analysis and decisions: The Annual Performance Review for FY15 has been taken up duly considering the actual expenditure as per the Audited Accounts against the expenditure approved by the Commission in its Tariff Order dated 12 th May, The item wise review of expenditure and the decisions of the Commission thereon are as discussed in the following paragraphs: Sales for FY15: a) Sales- other than IP Sets: The Commission in its Tariff order dated , had approved total sales to various consumer categories at MU as against the HESCOM s proposal of MU. The Actual sale of HESCOM as per the current APR filing [FORMAT D-2] is MU, indicating an increase in sale to an extent of MU, as compared to the approved sales (as also to its own projected sale). There is an increase in sales to LT consumers by MU and there is a reduction in sale to an extent of MU in HT-categories. The Commission notes that, as against approved sales of MU to categories other than BJ/KJ and IP sets [excluding HRECS sales and supply to the SEZ MU], the actual sales achieved by HESCOM is MU, resulting in the reduction of sales to these categories by MU. Further, the HESCOM has sold MU to BJ/KJ and IP categories against approved sales of MU, resulting in increased sales to these categories by MU. xxv

26 The actual share of sales to categories other than BJ/KJ and IP sets is 41.81% as against the estimated share of 46.00% resulting in 4.09 percentage point reduction in share to these categories, while the actual share of sales to BJ/KJ and IP sets has increased by the same percentage point. The Commission notes that the major category contributing to the reduction in sales with respect to the estimates are HT industries ( MU), and LT- 2a (31.14 MU). Further, the sales to IP sets have increased by MU. In response to the preliminary observations, the HESCOM in its reply has stated that, HT sales have decreased due to reduction in sales to categories other than HT-2c as compared to the estimated sales to these categories. Further, it is stated that the reduction in sale to HT category is due to HT consumers drawing power under Open Access. HESCOM has also stated that there is increased sales in LT-1, LT4 (a) & (c), LT5 and LT6 categories. The Commission notes that as per the information furnished by the HESCOM, there is considerable increase in open access sales from MU in FY13 to MU in FY15. b) Sales to IP Sets: In its Tariff Order dated 6 th May, 2013, the Commission had approved specific consumption of IP sets at 8,244 units/installation/annum for the entire control period of the FY14 to the FY16, whereas, as per the IP sets consumption reported by the HESCOM in its tariff filing, the specific consumption works out to 8,996 units /installation/annum for the FY15, which indicates a huge increase in the specific consumption by 752 units/installation/annum. The total IP sets consumption reported by the HESCOM for the FY15 was 5, MU as against 4, MU sales quantum approved by the Commission. The difference in IP sets consumption between the approved and the actual for the FY15 is MU.Thus, the specific consumption has increased by 752 units xxvi

27 /installation/annum with the corresponding increase in sales also by a huge quantum of MU to that of the approved quantum by the Commission for the FY15. It is noted that the specific consumption reported for the FY15 has increased by about 9 per cent which is very huge compared to the specific consumption achieved by the HESCOM for the previous years. It is also noted that the specific consumption should not increase over the years as it remains fairly constant given that the 11 kv feeders are segregated as rural & agricultural feeders and power supply to agricultural feeders is regulated. Further, the consumption of the IP sets can also be measured accurately on the basis of energy meters data of agricultural feeders at the substations which was not possible earlier. Moreover, the Commission had approved 5,72,306 as number of installations, likely to be serviced in the FY15; whereas the actual number of installations serviced, as reported by the HESCOM, was 6,01,939, an increase by 29,633 numbers. This indicates that, the increase in number is about 5 per cent of installations serviced during the FY15, as compared to the approved number of installations by the Commission. It is noted that the increase in sales can be partly attributed to increase in number of IP set installations serviced under regularization scheme as compared to the projected number of installations for the FY15. The Commission in its Tariff Order dated 12 th May, 2014 had directed the HESCOM to submit to the Commission every month, the IP sets consumption based on the feeder energy meters data, of agriculture feeders segregated under NJY, duly deducting the energy losses in the distribution system. But, the HESCOM has not submitted the metered consumption data of agricultural feeders every month regularly to the Commission. The HESCOM in its tariff application has also not submitted such data of IP sets for the period from April 2014 to March 2015 as required by the Commission. xxvii

28 The Commission in its preliminary observations on the HESCOM s APR for the FY15, had directed the HESCOM to justify its claims of IP sets consumption of 5, MU considered for the FY15, with necessary data in support of the same and the methodology adopted to arrive at the energy loss figures in the 11 kv distribution system for the FY15. The HESCOM was also directed to furnish whether the total IP sets consumption for the FY15 has been computed by considering the specific consumption of agricultural feeders segregated under NJY as directed or on the basis of readings obtained from the meters fixed to sample DTCs feeding predominantly IP set loads. However, the HESCOM, in its reply on the preliminary observations made by the Commission, has stated that it has analyzed 142 numbers of agricultural feeders segregated under NJY from April, 2015 onwards only. It is submitted that, as per the analysis, the IP set consumption in the river bed areas is ranging from 900 units to 1,667 units, whereas in other areas the consumption is ranging from 378 units to 1,003 units and the average consumption is only 603 units per installation per month. Further, it is also submitted that in some of the feeders, bifurcation of IP set loads is under progress and wherever exclusive agricultural feeders are not available, the IP set consumption has been assessed on the basis of the metered data of sample DTCs feeding predominantly IP set loads. The HESCOM has requested the Commission to consider the specific consumption at 727 units per installation per month as filed in its tariff application. The Commission notes that, the HESCOM has not submitted the IP sets consumption details on the basis of meter readings obtained from the agricultural feeders segregated under NJY, despite achieving significant progress in commissioning of feeders under NJY, instead, it has considered the metered data of sample DTCs feeding predominantly IP set loads as per the methodology approved by the Commission up to the FY14. It is noted that the HESCOM has not submitted these details for the FY15. It is also not clear as to how the HESCOM has computed the total IP set consumption of 5, MU for xxviii

29 the FY15 without any basis for arriving at the net IP sets consumption. Further, the HESCOM has also not submitted the necessary data to justify its claim in respect of IP sets consumption considered for the FY15. The result of the analysis made by the HESCOM from April, 2015 onwards cannot be a basis for arriving at the total consumption of IP sets for the previous period, i.e., FY15. It is clear that the HESCOM has not complied with the Commission s direction to it to submit the metered data, despite segregating a large numbers of 11 kv feeders as rural and agricultural feeders under NJY, wherein it was possible to compute the total IP set consumption accurately on the basis of feeder energy meter readings. Further, the Commission, during the validation meeting held on , had also directed the HESCOM to submit the IP sets consumption on the basis of energy meter readings of 11 kv agricultural feeders which have been segregated under NJY. In response, the HESCOM has submitted the details of IP sets consumption based on the meter data in respect of DTCs feeding predominantly IP loads, in support of its claims in respect of total IP sales to an extent of 5, MU for the FY15. The HESCOM has stated that the bifurcation of loads on segregated agricultural feeders was not fully effected in the field and for that reason, the consumption on the basis of agricultural feeders for the FY15 could not be furnished to the Commission and has requested the Commission to approve the sales of 5, MU made to IP sets. The Commission notes that, due to field issues in transferring of loads from agricultural feeders on to the NJY feeders, the HESCOM has assessed the IP set consumption for the FY15 based on the readings from the meters provided to DTCs feeding predominantly IP set loads. The HESCOM should have addressed these field issues while commissioning of feeders to ensure that loads on the respective feeders were transferred to enable taking accurate consumption of IP sets. Further, the Commission notes that the increase in sales to IP sets xxix

30 for the FY15 can only be partly attributed to the fact that the HESCOM has serviced 29,633 number of IP sets more than it has projected. The increase in sales could be also due to supplying more number of hours of power to IP sets on agricultural feeders than stipulated by the Government. Hence, the HESCOM is directed to regulate henceforth the hours of power supply to exclusive agricultural feeders as stipulated by the Government. For the present accepting the HESCOM s explanation on this issue, in the absence of feeder wise energy meter data in respect of segregated agricultural feeders, based on the meters provided to DTCs feeding predominantly IP set loads, the Commission decides to approve 5, MU sales to IP sets for the FY15 as filed by the HESCOM, in its tariff application. The HESCOM is directed to report the total IP set consumption on the basis of data from energy meters in respect of agricultural feeders segregated under NJY duly calculating the distribution system losses in 11 KV lines, distribution transformers and LT line, to the Commission every month regularly. The HESCOM is also directed to calculate the actual distribution losses prevailing in 11 kv lines, DTCs and LT lines as per the methodology approved by the Commission for arriving at the net IP sets consumption. c) Total Approved Sales: The category wise sales approved by Commission and the actuals for FY15 are indicated in the table below: Category TABLE 4.4 Approved & Actual Sales FY15 Approved Actuals considered for APR Figures in MU Difference (Actuals Approved) LT-2a* LT-2b LT xxx

31 LT-4b LT-4c LT LT LT LT HT HT-2a HT-2b HT-2c HT-3a & b HT HT Sub total BJ/KJ IP Sub total Grand total** *Including BJ/KJ installations consuming more than 18 units/month **Excludes sale to HRECS and SEZ. Thus, the Commission approves sales of MU for FY Distribution Losses for FY15: HESCOM s Submission: The Commission had approved distribution losses for FY15 as shown in the table below: Range FY15 Upper limit 19.50% Average 19.00% Lower Limit 18.50% HESCOM has reported the distribution loss level of 16.74% in its annual accounts for FY15. 1 Energy at Interface Points in MU Total sales in MU Distribution losses as a percentage of input energy at IF points 16.74% Commission s analysis and decisions: The distribution losses of 16.74% reported by the HESCOM is based on the sales of MU as against the energy of MU at interface points. Considering the approved range of losses for FY15, the xxxi

32 HESCOM has achieved reduction of distribution losses below the lower limit of allowable losses by 1.76 percentage point. Hence HESCOM is entitled to incentive for better performance in loss reduction, during FY15 as follows: TABLE 4.5 Incentive for loss reduction for FY15 Particulars FY15 Actual input at IF points as per audited accounts in MU Retail sales as per audited accounts in MU Percentage distribution losses 16.74% Lower limit target for distribution loss 18.50% Reduction in loss in percentage point 1.76% Input at target loss for actual sales in MU Decrease in input due to reduction in distribution losses in MU Average cost of power purchase at IF points in Rs./unit 2.89 Savings in power purchase cost due to reduction of losses in Rs.Crores % of savings to be included in APR 15 (balance 50% being the share of consumes) Accordingly, the Commission decides to add an amount of Rs Crores to the allowable ARR for FY Power Purchase: The Commission in its Tariff order dated 12th May, 2014 had approved source wise quantum and cost of power purchase for FY15. The HESCOM, in its application, has submitted the details of actual power purchase for FY15 for reviewing its Annual Performance. The details of power purchase is listed as under: TABLE 4.6 HESCOM s POWER PURCHASE FOR FY 15 Source Actuals for FY15 Approved for FY15 Difference of Actuals over the Approved-for FY15 % increase /decrease over approved figures xxxii

33 Energy in MUs Cost in Rs Cr Rate in Rs per Unit Energy in MUs Cost in Rs Cr Rate in Rs per Unit Energy in MUs Cost in Rs Cr Rate in Rs per Unit Energy Cost Rate KPCL Hydel Stations KPCL Thermal Stations Total CGS Major IPPs IPPs -Minor (NCE Projects) Other States Projects Short /Medium term including U I & Sce-11 Transmissio n Charges (KPTCL & PGCIL) LDC Charges (POSOO & SLDC) Energy Balancing Others Charges TOTAL * * *Excluding HRECS Commission s analysis and decisions; 1. The actual power purchase for FY15, as filed by the HESCOM, for approval of ARR in the Annual Performance Review is MU amounting to Rs Crores as against the approved quantum of MU amounting to Rs Crores. Thus, there is a reduction in quantum of power purchase to an extent of MU with an increase in the cost to an extent of Rs Crores. 2. On an analysis of the source-wise approved and actual power purchases, the following deviations in quantum of energy and its cost of purchase are found: As against the approved quantum of MU, the actual power purchased by HESCOM is MU for FY15, which is around 1.26% of the approved quantum. Such decrease during xxxiii

34 FY14 was 2.67%. The reduction in sales reflected in reduced power purchase. i. On verification of the source-wise power purchase, it is found that, there is lesser energy supply from KPCL thermal, CGS, NCE and other State projects to an extent of MU at a cost of Rs Crores. Consequently, the HESCOM has purchased short term power to a tune of MU at a cost of Rs Crores. The HESCOM has incurred an additional cost Rs Crores towards short term/medium term Power Purchase resulting in an increase in per unit cost by 9 Paise. ii. All these factors including the change in the source wise mix of supply and reconciliation of energy and its cost among ESCOMs have resulted in higher average power purchase cost of the HESCOM at Rs.3.29 per KWh as against the approved rate of Rs.3.19 per KWh leading to an increase by Rs.0.09 per unit. During FY14, the increase was Rs.0.26 per unit. The increase in per unit cost is 2.94%, in FY The Commission notes that, the SLDC is yet to implement the intrastate ABT scheme. The Commission therefore directs SLDC to take appropriate action immediately to expedite the implementation of intra-state ABT scheme and to host such details on its website. 4. The Commission in its Tariff order dated 2 nd March, 2015 had directed HESCOM to move the Government to effect necessary adjustments in the tariff subsidy payable to ESCOMs and ensure that there are no inter- ESCOM payments outstanding in their accounts. Further, HESCOM was also directed to reconcile the inter- ESCOM exchanges and its costs duly making necessary adjustments to ensure proper accounting of energy and its cost. 5. It is observed that, inter-escoms balanced energy to an extent of MU at a cost of Rs Crores has resulted in increased receivables of HESCOM to an extent of Rs Crores in FY15. xxxiv

35 6. HESCOM is directed to reconcile the inter ESCOM energy exchanges and its costs every month and the difference amounts shall be collected/paid out of the tariff subsidy received from the Government of Karnataka, to ensure proper accounting of energy and its cost. In terms of the MYT Regulations, the Commission taking note of the above facts, decides to consider MU at a cost of Rs Crores (as per audited accounts) towards power purchases, for approving the Annual Performance Review of HESCOM for FY Renewable Purchase Obligation (RPO) compliance by the HESCOM for FY15: Name of Company The HESCOM has submitted that its achievement of non-solar RPO and solar RPO are 10.30% and 0.34%, respectively, as against the targets of 7% and 0.25%, respectively, as indicated below: TABLE 4.7 RPO compliance as submitted by the HESCOM for the FY15 Total Input Energy incl. HRECS (MU) Non-Solar RPO Solar RPO Target Achieved Target Achieved (MU) (%) (MU) (%) (MU) (%) (MU) (%) HESCOM The Commission has approved total power purchase quantum of MU (including HRECS) for the FY15 in the APR of HESCOM. Based on the information furnished, the Commission notes that the HESCOM has purchased non-solar energy of MU (6.86%) and solar energy of MU (0.34%). Considering the surplus solar energy of MU, the net short-fall in non-solar RPO is 0.06 percentage point for the FY15. The Commission notes that, when the State as a whole is taken for the purpose of assessment of achievement of non-solar RPO, in aggregate all the State owned ESCOMs have achieved the total non-solar RPO xxxv

36 target set for the State. The Commission therefore decides not to recognize the individual achievement of the HESCOM and to treat the matter as closed Operation and Maintenance Expenses: HESCOM s Submission: The HESCOM has sought approval of O&M expenditure of Rs Crores for FY15. expenses as follows: HESCOM has claimed the O&M TABLE 4.8 O & M Expenses for FY15 HESCOM s submission Amount in Rs.Crores Particulars FY15 Repairs & Maintenance Employee Expenses A&G expenses O&M expenses Commission s analysis and decisions: The Commission in its Tariff Order dated 12 th May, 2014 had approved O&M expenses for FY15 as detailed below: xxxvi

37 TABLE 4.9 Approved O&M Expenses for FY15 Amount in Rs. Crores. Particulars FY15 No. of installations as per actuals as per Audited Accts Weighted Inflation Index 6.89% CGI based on 3 Year CAGR 5.17% Actual O&M expenses for FY Approved O&M Expenses for FY As per the Annual Audited Accounts of HESCOM for FY15, the actual O&M expenditure is as follows: TABLE 4.10 O&M Expenses of HESCOM as per Annual Audited Accounts for FY15 Amount in Rs.Crores Repairs & Maintenance Employee Expenses A&G expenses O&M expenses The Commission in its preliminary observations, had sought the details of the items of expenditure incurred by HESCOM during FY15 under A & G expenses. HESCOM in its replies has stated that it has incurred expenses of Rs Crores towards professional charges, Rs Crores towards conveyance, travel and vehicle hire expenses besides other A&G expenses. On a detailed review of the expenses, it is observed that HESCOM is incurring substantial expenses on vehicle hire charges and professional charges. Also, the R&M expenses are increasing year on year, without proper justification. One of the major items incurred under R & M is expenses are on repairs of distribution transformers. The HESCOM needs to institutionalize a mechanism for minimizing such expenses. These expenses are abnormally increasing as compared to the previous years. Since the O & M expenses are controllable, HESCOM has to initiate necessary measures to ensure prudence in incurring these expenses. The Commission is of the view that HESCOM should control its O & M expenses as per the approved O & M expenses so that the xxxvii

38 actual O & M expenses does not exceed the approved levels. However, for the present based on the provisions of the MYT Regulations, the Commission has proceeded with determining the normative O & M expenses. Considering the Wholesale Price Index (WPI) as per the data available from the Ministry of Commerce & Industry, Government of India and Consumer Price Index (CPI) as per the data available from the Labour Bureau, Government of India and adopting the methodology followed by the CERC with CPI and WPI in a ratio of 80: 20, the allowable inflation for FY15 is computed as follows: Year WPI CPI Composite Year Product [(t- Yt/Y1=Rt Ln Rt Series (t-1) 1)* (LnRt)] A= Sum of the product column B= 6 Times of A C= (n-1)*n*(2n-1) where n= No of years of data= D=B/C 0.07 g(exponential factor)= Exponential (D) e=annual Escalation Rate (%)=g* For the purpose of determining the normative O & M expenses for FY15, the Commission has considered the following: a) The actual O & M expenses allowed for FY13 excluding contribution to Pension and Gratuity Trust. b) The three year compounded annual growth rate (CAGR) of the number of installations considering the actual number of installations as per audited accounts up to FY15. c) The weighted inflation index (WII) at 7.24% as computed above. xxxviii

39 d) Efficiency factor at 2% as considered in the earlier two control periods. Thus, the normative O & M expenses for FY15 will be as follows: Particulars FY15 No. of Installations as per actuals as per Audited Accts Weighted Inflation Index 7.24% Consumer Growth Index (CGI) based on 3 Year CAGR 3.52% O & M expenses for FY13 excluding P&G contribution - Rs. Crs Normative O&M Expenses - Rs.Crs The above normative O & M expenses have been computed without considering the contribution to Pension and Gratuity Trust. The Commission has treated certain employee costs on account of contribution to P&G Trust as uncontrollable O&M expenses as these expenditure are incurred on the basis of actuarial valuation. This component has been allowed beyond the normative O&M expenses to enable ESCOMs to meet their actual employee costs. The HESCOM in its audited accounts for FY15 has indicated an amount of Rs Crores towards contribution to Pension and Gratuity Trust. Considering the contribution to terminal benefits to the Pension and Gratuity Trust as uncontrollable O & M expenses, the Commission has computed the allowable O & M expenses for FY15, as follows: TABLE 4.11 Allowable O & M Expenses for FY15 Amount in Rs. Crores Sl. No. Particulars FY15 1 Normative O & M expenses Additional employee cost (uncontrollable O & M expenses) 3 Allowable O & M expenses for FY Thus, the Commission decides to allow an amount of Rs Crores as O&M expenses for FY15. xxxix