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BEFORE THE UTTAR PRADESH ELECTRICITY REGULATORY COMMISSION


ORDER UNDER UP ACT NO. 24 OF 1999


UPPCL Petition No. 1 of 1999/2000
NPCL Petition No. 2 of 2000
KESCO Petition No. 8 of 2000

Lucknow

27 July 2000

CHAPTER 1: Statutory Provisions

1.0 The Central Government set in motion the reform process in the power sector in the States by notifying The Electricity Regulatory Commission Act 1998, in July of that year. This Act envisaged the setting up of a Central Regulatory Commission and State Electricity Regulatory Commissions to rationalize Tariffs, ensure transparency, promote efficient and environmentally benign policies, promote competition in the power sector, and ensure fair returns to investors. The Uttar Pradesh Electricity Regulatory Commission (UPERC) was established under the provisions of this Central Act and functioned under it until 14-1-2000, when the Uttar Pradesh Electricity Reforms Act 1999 came into force, vide Government of Uttar Pradesh notification No. 148/p-1/2000-24. Section 3(1)(b) of this State Act stipulates that the Commission established under the Central Act would be the Commission under the new Act and its Chairperson and Members would be deemed to have been appointed under this Act. Hence, the Commission is required to perform the functions assigned under the UP Electricity Reforms Act 1999.

1.1 The following provisions of the Uttar Pradesh Electricity Reforms Act 1999 define the Tariff determining role of the Commission.

  1. Section 10(a) empowers the Commission to determine the Tariff for electricity, wholesale, bulk, grid or retail, as the case may be.

  2. Section 10(b) empowers the Commission to determine the Tariff payable for the use of transmission facilities.

  3. Section 24 provides that the Commission may specify through Regulations, the terms and conditions for the determination of Revenues and Tariffs, and shall be guided by the following principles in doing so: -

    1. Financial Principles laid out in Sections 46, 57, 57A, and the Sixth Schedule of the Electricity (Supply) Act, 1948. However, Section 54 of the UP Reforms Act 1999 states that to the extent specific provisions have been made under that Act, Sections 46, 57 and 57A (amongst others) of the Electricity (Supply) Act 1948 shall not apply

    2. Factors that would encourage efficiency, economical use of resources, good performance, optimum investments, observance of the conditions of the license, and other matters that the Commission may consider appropriate for the purposes of the Act.

    3. Interest of the consumers.

    4. Where the Commission departs from the guidelines provided above, it shall record the reasons for the same in writing.
      Section 24 further provides that no preference or favour is to be shown to any consumer of electricity, but differentiation may be made on grounds of the consumer's load factor or purpose of use or power factor, consumer's total consumption of energy during any specified period, or time during which the supply is required.

  4. Section 12 defines the powers of the State Government to issue directions on policy matters, including directions on policy matters concerning subsidies for electricity supply to any class or classes of persons or in respect of any area, in addition to the subsidies adjusted by the Commission while regulating and approving the tariff structure, provided that the State Government shall contribute the amount to compensate licensee or person affected by the grant of subsidies to the extent of the subsidies granted. The Commission is empowered to calculate the amount of subsidy, the method, the manner and the time within which such amount is to be paid by the State Government.

1.2 To give effect to the objectives of the Electricity Regulatory Commission Act 1998, the Commission had formulated its Business regulations under Section 58 of that Act, which were notified in the State Gazette on 15-9-1999. However, with the U.P. Electricity Reforms Act 1999 coming into force on 14-1-2000, the new Conduct of Business Regulations, incorporating the required changes to make them consistent with the new Act, were notified in the Gazette on 6-3-2000, in exercise of powers accorded under Section 52 of the Act. Regulations 121 to 133 depict the philosophy, methodologies and procedures for calculating the Expected Revenue from charges and determining Tariffs. As indicated earlier, these calculations shall be guided by certain factors indicated in Section 24 of the Act, including the 6th Schedule of the Electricity (Supply) Act 1948. Any departure from these provisions is required to be recorded in writing giving reasons thereof. Further, consistent with the mandate provided in the Act, and permissible under Section 24(2)(b) of the Act, the Regulations provide that the Commission may keep in view the necessity to link Tariffs to:

a. Increase in productivity of capital employed and efficiency.
b. Unbundling actual costs of generation, transmission etc. to enable rational allocation of costs.
c. The simulation of competitive conditions.
d. Providing incentives in a transparent and non-discriminatory manner for a continuous enhancement in efficiency of power utilities.

1.3 The Regulations further provide that each licensee shall file,
a. A Demand forecast by customer or consumer category for the ensuing financial year and the derivation of the forecast.
b. A calculation of expected aggregate revenue that would result from the above demand at current tariffs.
c. A calculation of the licensee's estimated costs of providing the service required by the demand forecast.
d. The licensee's proposal to deal with the difference between the expected aggregate revenue and the expected cost for each category of consumers.

Some other salient features of the Conduct of Business Regulations are that:
a. The information required above shall be provided in the formats specified by the Commission.
b. The Tariff as determined by the Commission shall not be amended or modified more than once in a financial year, expect in respect of any change expressly permissible under the terms of any fuel surcharge formula provided by the Commission.
c. The Commission may prescribe different Tariffs to different persons according to the consumer's load factor or purpose of use or power factor, consumer's total consumption of energy during any specified period, or time during which the supply is required.
d. If the state government proposes any subsidy to any category of consumers, the Commission shall determine the amount to be paid as subsidy, the method of such payment, including the time and manner of payment of subsidy amounts.

1.4 The Commission is required to follow a transparent procedure in the determination of Tariffs, taking the views of Stakeholders into account. To pursue this objective, the Commission, at the very outset, prepared an issue paper on Tariff setting and widely circulated it to solicit views of experts and Stakeholders. Five Open House discussions were organized in different parts of the State to enable the public to express their views on the ideas contained in the paper. The first open house discussion was held in Lucknow on 20-12-99. This was followed by discussions at Noida, Meerut, Vanarasi and Gorakhpur. Suggestions were varied and have provided substantial assistance in shaping this Tariff Order.

1.5 As has been noted above, the UP Electricity Reforms Act 1999 became effective only on 14-1-2000. Prior to 14-1-2000, the Commission was exercising powers conferred by The Electricity Regulatory Commission Act 1998 and the corresponding Conduct of Business Regulations. The change in the regulatory environment in the middle of January 2000 with the enforcement of the UP Electricity Reforms Act 1999, and the consequent trifurcation of UPSEB, has resulted in considerable disruption and delay in the Tariff determination for 2000-2001. A quick look at the developments starting from the first tariff filing by the erstwhile UPSEB would be in place.

1.6 In accordance with Section 22 of The Electricity Regulatory Commission Act 1998, the erstwhile UPSEB submitted an application for revision of Tariff for 2000-2001 on 31.12.1999. The Commission examined this Tariff application and pointing out shortcomings, directed the UPSEB to resubmit its application after reviewing the infirmities. The regulatory environment changed significantly as the Government of Uttar Pradesh, vide its notification no. 148/p1/2000-24, dated 14-1-2000, and brought into effect the Uttar Pradesh Electricity Reforms Act, 1999 and the Uttar Pradesh Electricity Reforms Transfer Scheme 2000. Consequently, the erstwhile UPSEB was reorganized into three corporations; Uttar Pradesh Power Corporation Limited (UPPCL), to carry out the business of transmission, distribution and retail supply, Uttar Pradesh Rajya Vidyut Utpadan Nigam Limited (UPRVUNL), to carry out thermal generation, and Uttar Pradesh Jal Vidyut Utpadan Nigam Limited (UPJVUNL), to carry out hydro generation in the State. In addition, the Government of Uttar Pradesh transferred Tanda Thermal Power Project to the National Thermal Power Corporation (NTPC) and the KESA area was separated as a subsidiary company of UPPCL and christened The Kanpur Electricity Supply Company Limited (KESCO).

1.7 The newly formed UPPCL, the principle successor to the UPSEB, filed a petition before the Commission requesting extension of time up to 15.2.2000 for furnishing additional information to appropriately amend the UPSEB filing on the Aggregate Revenue Requirement and Tariffs for the financial year 2000-2001, on account of the changed asset-liability position and area of operation. In view of the changed circumstances and the change in status of the petitioner from a State Electricity Board to a Licensee company, the Commission decided to grant this request. The Commission also called a meeting of affected parties on 4.2.2000 to explain in detail the process of tariff filing by the licensee. The State Government, UPPCL, UPJVNL, UPRVUNL, KESCO and NEDA participated in the meeting, during which the importance of filing a complete application comprising details of expected revenue, annual revenue requirement, and the other required documentation was stressed.

1.8 UPPCL filed the revised tariff application on 15.2.2000.

1.9 The Commission pointed out several discrepancies in the application and directed UPPCL to submit the information on Power Purchase Agreements with generation companies, bulk power supply agreements with distribution companies and detailed calculations of average cost of supply etc. Subsequently UPPCL submitted some additional documents and information to the Commission.

1.10 After further examining the Tariff information, the Commission pointed out various shortcomings and vide order dated 4.4.2000 required:
a. UPPCL to communicate the manner in which it proposes to meet the gap between expenditure and revenue in the financial years 1999-00 and 2000-01.
b. UPPCL to submit the proposed tariff schedule.
c. UPPCL to provide the budget, investment plans, sources of finance, and the returns expected from the investments.
d. The State Government to provide information on the subsidy, equity and loans that it proposed to release in 2000-01 and to communicate the class or classes of persons or the geographical areas for which subsidy is provided.

1.11 During the hearing on the Tariff petition on 27.4.2000, the Commission again pointed out that, details of consumption in rural areas, cost of supply to different classes of consumers, revenue from various billing determinants, and expenditure details were incomplete. UPPCL stated that they were unable to supply this data, as the information was not available with them. In the UPPCL proposal, the gap between total expenditure and total revenue in 2000-2001 was estimated at Rs. 3028 Crore. UPPCL proposed, that in the absence of any subsidy/subvention from the UP Government, an average tariff increase of 48.4% was required to meet this gap. The State Government informed the Commission during this hearing that provisions made in the State Budget for 2000-2001 for the electricity sector, included Rs. 240 Crore as subsidy for agricultural consumption, Rs. 150 Crore as electricity duty to be retained by UPPCL, Rs. 260 Crore as subsidy for capital expenditure on rural electrification works, and Rs. 210 Crore as equity to UPPCL. The Commission noted that the tariff filing still lacked in important details. Revenue projections did not rely on the billing determinants of tariff, i.e. number of consumers, connected load etc., the data on minimum consumption guarantee was not furnished, information regarding the capital budget was incomplete, and details of revenue expenditure were inadequate. While recognizing the shortcomings in UPPCL's management information system, and the pressing need to act without excessive delay in rationalizing Tariffs, the Commission noted that the Licensee has stated that it would not be able to provide the required information within a reasonable period. Therefore, in order to proceed further, and in spite of the petition being deficient in important information, the Commission accepted it at its hearing on 27.4.2000, without in any way implying its completeness.
1.12 Subsequently, UPPCL informed the Commission that they had received a communication from the State Government that Rs. 800 Crore would be provided as Subsidy and the company would be required to reduce T&D losses and improve revenue collection performance by 5% each, in 2000-2001. UPPCL requested that they wished to make amendments to their Annual Revenue Requirement and Tariff Application for 2000-2001 to factor in these directives, and requested the Commission for time until 4.5.2000 to file the revised petition.

1.13 In the revised application filed on 4th May 2000, UPPCL made the following amendments to the earlier proposals: -
(i) Transmission and Distribution losses that were envisaged to be brought down from the 41.55% to 40.55% originally were now envisaged to be reduced by a further 4% to 36.55%.
(ii) Collection efficiency, i.e. the proportion of the total billed amount actually collected, that was initially proposed to be raised from 82% to 83%, was now proposed to be raised by a further 4% to 87%.
(iii) Subsidy from the State Government, which was assumed as nil in the original petition was revised to Rs. 800 Crore.
(iv) In the initial petition, the revenue gap was projected at Rs. 3028 Crore, and the average tariff increase proposed to meet this gap was 48.47%. In the revised petition, with the estimated total expenditure at Rs. 8687 Crore, and the net revenue receipts at current tariffs, including non tariff income and subsidy from the State Government, projected to be Rs. 7818 Crore, the resulting gap is estimated at Rs. 1561 Crore, which is proposed to be met with an average Tariff increase of 24.99%.

1.14 As provided in the Act, a notice was published in the local newspapers by UPPCL giving summary information regarding the Annual Revenue Requirement and Tariff proposal, inviting objections to be filed within thirty days. A summary of the details of the Tariff proposal was made available to the public at the offices of the Chief Zonal Engineers of UPPCL. Copies of the ARR and Tariff Filing, comprising the detailed proposal were also made available from these offices at a payment of Rs. 200. In order to give stakeholders an opportunity to express their objections/concerns on the ARR and Tariff Revision proposals for 2000-2001, the Commission has held Public Hearings at Agra, Lucknow, Ghaziabad, Dehradun and Kanpur. The Tariff Proposals were also placed before the Electricity Advisory Committee and their views have been taken into consideration.



CHAPTER 2: Power Sector Environment in Uttar Pradesh

2.0 Tariff setting is an important instrument to make the power sector self-sustaining, improving its efficiency, enhancing the quality of service, attracting private capital and giving investors the confidence to introduce new technology and management techniques. The Commission would like to fix electricity tariffs in a manner that these objectives are achieved. The Commission has to balance the interest of consumers with those of electricity operators and also ensure that this process is undertaken in a fair, honest and impartial manner. Therefore, a fair allocation of costs should be made among consumers according to the burden they impose on the power system. There also has to be a fair degree of price stability so that large price fluctuations are avoided from year to year. The objective of optimum resource allocation within the power sector cannot be achieved without the provision of a minimum acceptable level of service for consumers. The special needs of the customers who may not be able to afford full cost can also not be completely overlooked. These objectives, however, can only be achieved through appropriate responses to regulatory inducements, by Utilities functioning in a conducive environment and possessing adequate organizational capabilities. It would be relevant to examine the circumstances that actually prevail in UP on this account.

2.1 The ills of electricity sector are well known and do not need any further elaboration. It is recognized that within the power sector, resources have not been allocated optimally. In particular, the transmission and distribution system has been neglected. This neglect is not restricted only to Uttar Pradesh, but is prevalent in most States. As a result, there are times when the system is forced to back down due to lack of demand, while at the same time consumers are unable to draw electricity due to shortcomings of the power distribution infrastructure. This situation is best illustrated by an example of Eastern India. In this region, the per capita consumption of electricity is the second lowest in the country (215 KWH against the national average of 338 KWH in 1996-97). In spite of the underlying potential to increase consumption, often there is excess power generated, even with very low capacity utilization in the regional power plants, due to a weak transmission and distribution system. The important lesson to be learnt from this experience is to recognize the need for striking the right balance between investments in generation on the one hand, and transmission and distribution on the other.

2.2 The objective of financial viability of the newly formed Corporations can be ensured only by improvement in working efficiency. It is, however, not possible for the Corporations to bring about improvements in efficiency by themselves. They require the active and consistent support of the State Government and consumers. Many difficulties have plagued the power sector in the country. Excessive Government interference in organizational and operational matters has often undermined least cost procurement, led to unwise investment decisions, has prevented prices from being raised to an efficient level, and promoted excessive staffing. These shortcomings combined with weak planning and demand forecasting, inefficient running of operations, low stress on maintenance, poor financial monitoring and control, have led to high losses and poor revenue collection. The electricity sector in Uttar Pradesh too has not been immune from excessive influence of the government. In order to bring about effective reform, the government should focus on critical macro economic policies, and energy sector strategy and policy. Senior Management should guide daily operations to meet these policy objectives and targets within the regulatory guidelines. The Corporations would become more accountable if their performance is measured against an agreed set of specific objectives and monitoring indicators. Increased responsibility of Senior Management would require regular consultations with stakeholders i.e. State Government as well as consumer representatives. These consultations should be to discuss performance problems, and success and failure of the organization. This rarely occurs as, like erstwhile UPSEB, the successor entity also seems to be reluctant to involve consumers in the decision making process. Not only senior management, but even middle level managers should be imparted motivation and adequate training, and made accountable for their performance on the basis of agreed performance indicators. In case of UPPCL, the State Government particularly should extend substantial support, both financially, and in other forms. The State Government at present is the owner of these Corporations and should ensure that these Corporations have the right institutional arrangements, which promote efficiency, and improvement both in terms of cost reduction and increase in collection. The efforts of the Government, since the creation of these Corporations, have been halting and inadequate. The Corporations need substantial institutional strengthening and operational planning. They lack in trained technical, financial and managerial manpower at all levels. This is evident from the fact that the three Corporations created under the transfer scheme have one Company Secretary and a common Finance Director. It is, therefore, extremely important that the Government assist these Corporations in quickly strengthening the management structure. Consumers also have to support the operations of the Corporations in several ways. At present the Transmission & Distribution losses are of the order of 41.5%, and the collection efficiency is only 81.2%. Thus only about 49% electricity purchased is actually paid for. Thus, paying consumers consuming slightly less than half the total electricity consumed, are paying not only for the electricity they have consumed, but also for the electricity that the non-paying consumers utilized. The Government has a major stake in this respect also, since in addition to consumers in the domestic, commercial, industrial and agricultural categories, the Government and Public Institutions are major consumers.

2.3 The State Government has to lead by ensuring that departments and other bodies belonging to or supported by Government pay their dues in a timely manner. If the Government itself defaults in its commitment, the task of the Corporation in collecting user charges from other customers would be very difficult. Wider coverage of metered supply and improved metering are essential technical requirements to help in reducing losses and improving collection. The technical requirements are desirable elements but may not necessarily lead to improvements in revenue collections. Technical improvements can have a lasting impact only if there are strong institutional practices operating in an atmosphere that is conducive to promoting higher efficiencies. If such an atmosphere is not created, technical improvements by themselves are not likely to result in sustainable improvement in the functioning of the power sector.

2.4 Like most other states, electricity tariffs in Uttar Pradesh are distorted. Presumably to promote access to electricity, electricity boards have encouraged cross subsidization to rural areas and urban domestic consumers. As a result, the commercial and industrial sectors are subsidizing other consumers. The practice of using industrial and commercial sector to cross subsidize other sectors cannot be sustained beyond a point. The utilities are finding it difficult to raise resources to sustain subsidies, and repair and maintain plant and machinery. Thus dwindling capital productivity, poor growth in labour productivity and neglect of repair and maintenance of plant and machinery have expedited the slippage to a state of non-performance and near insolvency. When the consumers find the cost of power supply to be unduly high and services inefficient, they migrate to other States or establish their own captive power plants. This has been happening in Uttar Pradesh. This is evident from the fact that in Uttar Pradesh there has been an absolute decline in electricity consumption by the industrial sector and a stagnant electricity demand in the commercial sector. If supply and service conditions do not improve substantially more consumers will opt out of the system. It is, therefore, of prime importance to improve the institutional capability of UPPCL to enhance electricity supply and improve the quality of service. The time has come when sectors other than industrial and commercial also make due contribution to meeting the cost of electricity supply. The Commission is conscious of the fact that improvements in capital and labour productivity, however necessary they may be, cannot be achieved immediately and there has to be a gradual process by which improvements take place and the distortions in the tariff system are corrected.



CHAPTER 3: Impact of Prevailing Tariff Practices

3.0 Electricity enters most economic activities as a key input. Therefore, the state of the power sector is a good indicator of the health of an economy. Table 1 indicates that the total connected load in Uttar Pradesh had increased during 1991-92 to 1996-97 at a CAGR of 5.7. During the same period, all-India total connected load increased at a CAGR of 6.6 percent. Industrial connected load in Uttar Pradesh, during the same period, posted a CAGR of only 1.6 percent as opposed to the all India figure of 5 percent. Similar observations can be made on electricity consumption. Thus, the growth of connected load in Uttar Pradesh has clearly been lacking in comparison to the all India performance.

3.1 Examining the components of overall growth, it is apparent that much of the growth in connected load in Uttar Pradesh is attributable to the growth in connected load in domestic and commercial sectors. Domestic load grew at a CAGR of 11.6 percent and commercial load grew by 9.8 percent CAGR during this period. Alarmingly, the predominant productive sectors of the economy, agriculture and industry, registered poor growth in connected load during this period. While industrial load had increased at a CAGR of 1 percent, agricultural load increased at the somewhat better rate of 3.5 percent. The same story emerges more emphatically from the data on category-wise energy sold for the same period. While energy sold to the domestic sector grew at a CAGR of 10.4 percent, and energy sold to the commercial sector grew at 5.2 percent, energy sold to the industrial and the agricultural sectors grew by only 0.2 percent and 2.9 percent respectively.
Table 1: Consumer's Connected Load (MW) in UP-Category Wise

Year Domestic Commercial Industrial Agriculture Others Total Load
1991-92 2912 (27.5) 827 (9.0) 3472 (34.0) 2968 (29.1) 397 (3.7) 10576
1992-93 3562 (33.7) 952 (10.0) 3598 (30.6) 3077 (26.5) 445 (4.2) 11634
1993-94 3755 (32.3) 1164 (10.0) 3556 (30.6) 3078 (26.5) 534 (4.6) 12087
1994-95 4124 (34.1) 1274 (10.5) 3729 (30.8) 3221 (26.6) 495 (4.1) 12843
1995-96 4542 (35.4) 1317 (10.2) 3752 (29.2) 3257 (25.4) 517 (4.0) 13385
1996-97 4854 (36.3) 1384 (10.3) 3763 (28.1) 3370 (25.2) 583 (4.4) 13954
1997-98 5192 (37.2) 1472 (10.5) 3855 (27.6) 3368 (24.1) 611 (4.3) 14498
1998-99 6290 (43.4) 1591 (10.10) 3732 (25.7) 3769 (26.0) 564 (3.9) 15946
CAGR 11.6 9.8 1 3.5 5.1 6
1. CAGR - Compound Annual Growth Rate
2. Figures inside brackets are percentage share in total load.
3. Source: UPSEB Statistics at a Glance 1998-99


3.2 Not surprisingly, economic performance in Uttar Pradesh has been lacklustre. While the Indian economy has grown during 1993-94 to 1997-98 at a CAGR of 6.7 percent, Uttar Pradesh's Net SDP (after adjusting for inflation, using All-India WPI-All Commodities Index) has grown by 5.0 percent CAGR. More disconcertingly, the gap between industrial growth in Uttar Pradesh and India during 1993-94 to 1998-99 was starker, and in large part can be attributed to the sorry state of the electricity sector.

3.3 The disparity in sector-wise growth in connected load has obvious implications for shares of different sectors in total connected load. While the share of domestic consumers in total connected load in Uttar Pradesh has increased significantly, from 27.5 percent in 1991-92 to 43.4 percent in 1998-99, industries' share in connected load has dwindled sharply, from 34.0 percent in 1991-92 to 25.7 percent in 1998-99. On similar lines, the share of the domestic sector in energy consumption has increased from 19.0 percent in 1991-92 to 28.3 percent in 1998-99, while the share of industry in energy consumption has decreased from 27.3 percent in 1991-92 to 20.7 percent in 1998-99 (see Table 2). The position of load/consumption shares for Commercial and Agricultural Sectors has been more stable over this period.
Table 2: Category-wise Energy Sold (MWh) and Revenue Collected (Percentage Share in Total)

Year Domestic Commercial Industrial Agriculture Others
E$ R* E R E R E R E R
1991-92 19 15.8 6.7 9.3 27.3 53.2 38.4 11.0 8.6 10.7
1992-93 20.5 15.3 6.4 9.4 26.6 51.8 38.1 11.2 8.4 12.3
1993-94 21.5 15.1 7.2 10.0 25.3 51.1 37.4 10.4 8.6 13.1
1994-95 23.3 15.8 7.4 10.7 24.3 48.5 36.8 12.8 8.2 12.2
1995-96 22.7 16.3 7.9 11.1 24.6 47.6 36.3 12.8 8.5 12.2
1996-97 24.2 16.9 7.0 10.1 23.3 49.7 36.2 11.2 9.3 12.1
1997-98 26.8 16.4 7.1 11.1 22.3 49.9 34.9 10.1 8.9 12.5
1998-99 28.3 17.3 7.1 11.9 20.7 48.7 35 9.9 8.9 12.2
$ Energy Sold
* Revenue Collected
Source: UPSEB - Statistics at a Glance - 1998-99


3.4 Much of the above transformation is a consequence of the industrial sector (and to some extent the Commercial Sector) increasingly subsidizing the domestic and agricultural sector. As industrial tariffs have hardened excessively over the years, and quality of service deteriorated, industrial consumers have moved to other States or increasingly relied on captive generation. This trend is reflected in the dwindling share of industries in revenue generation, which declined from 53.2 percent in 1991-92 to 48.7 percent in 1998-99. Notably, despite the rising share of the domestic sector in energy consumption, domestic consumers' share in revenue generation has increased insignificantly from 15.8 percent in 1991-92 to 17.3 percent in 1998-99. This is understandable as the tariff in the domestic sector has posted a growth of only 4.4 percent CAGR during 1992-93 to 1998-99, which is below the inflation rate for the period, implying a fall in real tariffs for this sector. The ratio of the average domestic tariff to the average tariff for all consumers has decreased from 74.7 percent in 1992-93 to 56.1 percent in 1998-99. This implies a major cross subsidy/subsidy to this sector.

3.5 This adverse transformation in the Average Tariffs across consumption categories that has occurred over the years is described in Table 3 below. Prior to 1982-83, the average revenue realized from industries was less than that from the domestic sector. Since then the average revenue realization from industries has exceeded the average revenue realization from the domestic sector, and the gap between the two has increased incessantly. In 1998-99 the average revenue realized from Industry was 385 percent of the average revenue realization from domestic consumers. Significantly, the average revenue realization in the domestic sector has been lower than the average cost of power at the consumer's end for the entire period under consideration.

3.6 The data also reveals that the agricultural sector also enjoys a substantial subsidy in electricity Tariff. The subsidy to the domestic sector, both from direct and cross-subsidization sources, as per UPSEB data, is stated to be 27-32 percent of the entire subsidy bill. The subsidy for the agricultural sector is stated to be 63-66 percent of the entire subsidy bill. For at least two reasons the estimate on agricultural subsidy is probably an overestimation and that on subsidy to the domestic sector is probably an underestimation. First, recent accurate estimates of T&D losses reveal that a large part of electricity theft has historically been attributed as supply of electricity to the un-metered agricultural sector for data purposes, which has led to overestimation of the total consumption of electricity by this sector, and hence, also of the total subsidy enjoyed. Second, consumption estimates have neglected the fact that electricity supply to the agricultural sector has been restricted, and has been of poor quality. An accurate estimation of the subsidies to the domestic and the agricultural sectors would require accurate and fairly elaborate data, which is not available.
Table 3: Uttar Pradesh: Category-wise per unit Average Revenue 1980-81 to 1997-98 (in paise)

Year Domestic Industrial Agriculture Others Total
1980-81 54 43 18 34 35
1981-82 54 49 21 43 40
1982-83 56 56 22 50 44
1983-84 61 65 27 56 51
1984-85 54 70 26 66 53
1985-86 52 71 28 69 54
1986-87 55 95 27 64 63
1987-88 72 100 23 91 64
1988-89 69 108 24 77 66
1989-90 58 127 21 100 70
1990-91 62 142 19 99 73
1991-92 66 155 23 104 80
1992-93 81 211 32 159 108
1993-94 78 225 32 166 112
1994-95 84 247 43 183 124
1995-96 101 272 50 200 141
1996-97 102 312 45 199 146
1997-98 105 383 50 249 172
1998-99 110 424 49 275 180
Source: UPSEB Statistics at a Glance - 1997-98

3.7 Revenue generation, overall, has consistently lagged behind cost of electricity supply during 1991-92 to 1998-99. The gap between average cost of electricity supply and average tariff has increased from Rs. 0.53 to Rs. 0.79 during 1991-92 to 1998-99. In real terms, the gap has increased at a CAGR of 0.5 over this period.

3.8 Thus, the current tariff regime has failed not only in generating reasonable profits for the licensee, which is a prerequisite for affecting the much-needed improvements in the quality of electricity service and sustaining the industry, but has, more importantly, stunted economic progress of the state.



CHAPTER 4: Theoretical Issues and the Commission's Approach

4.0 Having examined the statutory and functional environment within which the Commission is expected to perform its role in determining Tariffs, it is important to discuss the Commission's approach on the various underlying theoretical issues, before going on to an analysis of the various aspects of the UPPCL petition itself.

4.1 While Regulatory Jurisdictions are of fairly recent vintage in India, there is a substantial volume of received wisdom on the theory and practice of Regulatory Control available from the experience of Regulators in other parts of the World and Academic sources. The Commission recognized the important role of this literature in assisting the Regulator in effectively discharging his role and arriving at a reasoned stance on the various difficult choices to be made. This Section is devoted to examining the alternative approaches available in this body of knowledge on the various aspects of Electricity Tariff Determination and the path the Commission chose to adopt, keeping in mind the statutory provisions that were applicable.

4.2 In exercising various choices, the Commission has been guided by the underlying belief that a prudently determined tariff structure and related requirements applied to the Licensees, can over time, be a means to attracting investment into the Sector and enhancing efficiency in the generation, transmission and distribution of electricity in the State, while safeguarding the viability of the utilities and protecting the interest of the consumer.

4.3 Electricity Tariff Determination in the reformed Power Sector, as described in the UP Electricity Reforms Act 1999, involves the following steps: -

1. Category wise estimation of the likely electricity consumption during the period for which Electricity Tariffs are to be determined.

2. Estimation of the legitimate cost, inclusive of the reasonable permissible return, likely to be incurred by the Licensee in supplying the consumption estimated in 1.

3. Estimation of the total revenue likely to be recovered by the Licensee for supply of this power, at the current permissible Tariffs.

4. Determination of the revised Electricity Tariffs, to meet the revenue gap between the numbers arrived at in 2 (Revenue Requirement) and 3 (Expected Revenue from Current Charges).

The Commission was required to resolve various underlying analytical and conceptual issues in completing these steps and arriving at the Electricity Tariffs to be implemented. The choice between alternative options available was at times a difficult one to make. Most often the optimal solution was difficult to fully implement, immediately, on account of non-availability of data, or due to compulsions of the environment inherited by the Commission. In all such cases, the Commission has attempted to arrive at a reasoned appropriate stance, which forms the basis of this Tariff Order.

4.4 Examining the initial step of estimating future consumption of electricity, it is pertinent that the quantity of electricity demanded across various consumer categories depends on various explanatory variables like price, income, population, industrial growth, urbanization, price of substitutes etc. To that extent estimation of future consumption for various consumer categories requires the estimation of the relationship between quantity of electricity demanded in each consumer category and the appropriate explanatory variables, through regression analysis. This estimated relationship could then be used to predict future consumption by plugging in the expected future values of the explanatory variables obtained from various primary and secondary sources. This method, however, requires reliable data on a large number of variables, for a significant number of past years, to provide statistically reliable results. Paucity of this data for UP compelled the Commission to rely upon less demanding Time Series methods indicated below.

4.5 Time Series methods, ranging from simple linear projections, compound annual growth rates, to more sophisticated variants, offer themselves as a more tractable alternative. Given the somewhat unintelligent extrapolation involved in this method, there is a need to exercise caution and adjust the predicted values to incorporate anticipated out of trend changes in the underlying determinants, which might be revealed from other sources. Short-Term estimations based on this method are likely to be reasonably accurate.


4.6 This analysis assumes that the total electricity demand generated by the underlying fundamentals is met by available supply. In other words, it assumes that price and other fundamentals are such that market clearance or marginal excess supply occurs in the market for power. However, in UP today the quantity of electricity consumed is supply constrained. In other words, the structural constraints of the supply side, and imprudence of the existing tariff structure are such that an excess demand occurs at the prevailing price, and actual consumption is supply determined. In this scenario, growth in future consumption largely becomes a function of growth in supply, and the tariff structure adopted in that period. To the extent that radical over-night changes in the Tariff structure are not feasible, changes in electricity consumption in the immediate future, would largely depend on the ability of the licensee to increase supply through reduction in losses, higher generation through improved efficiency in the State Generation Companies, and larger purchases from Central sources through an improvement in the ability to pay. Thus, it would be prudent to temper the estimate of future consumption obtained from the Time-Series approach suggested above, with a realistic estimate of the Licensees ability to supply more in the short-run with its severely deficient, and somewhat disrupted, infrastructure.

4.7 The Commission has adopted this modified approach on this issue, which in its view is the most prudent option in the circumstances. As conditions in the electricity industry in the State progress towards improved norms and reliable data becomes available, the Licensee under the guidance of the Commission shall graduate to the more sophisticated methods indicated above.

4.8 At the next stage, the cost the licensee will incur in providing the future electricity consumption, estimated above, needs to be determined. It will comprise variable costs that would vary with the volume of power supplied, and fixed costs that are non-varying committed expenses, un-escapable in the short-run. Further, these costs can be divided into direct costs that can be attributed completely to particular supply channels and end users, and indirect overhead costs on common facilities. Ideally, the regulator would require the licensee to have an accounting framework that exhaustively records all variable and fixed costs, separately as direct and indirect, at an appropriate level of disaggregation. A suitable system of allocating indirect overhead costs across the various supply channels would enable the calculation of the per-unit cost of supply to various consumer categories. This data is important in arriving at a Tariff structure that bears a close relationship with the cost of supply to various consumer categories.

4.9 The prevailing state of Bookkeeping in the Power Sector in UP, however, greatly deviates from this ideal. In these circumstances, the Commission had to be largely satisfied with a reasonably exhaustive listing of all costs, that enables the calculation of an average per-unit cost of supply, rather than the cost of supply to each consumer category. Some, somewhat ad-hoc, cost calculations by voltage of supply categories have, however, been made available. These are the expected costs the licensee is likely to incur, given his current practices.

4.10 This Commission was required to scrutinize this submission by the licensee and arrive at the legitimate level of the cost of supply that the licensee could be allowed to recover. In arriving at the various elements of cost that were acceptable, the Commission was essentially guided by the Sixth Schedule of the Electricity (Supply) Act 1948. Certain prudent deviations from requirements of this Schedule, which are permissible under the UP Electricity Reforms Act 1999, have been explained in this order.

4.11 The Commission also compared the various elements of this expected cost of supply with the norms applicable to the Industry. The expected costs reported by the licensee, that have been inherited as a result of past discretions and indiscretions, and this ideal norm, form the two limits within which, the Commission could fix the legitimate level of costs that the licensee could be allowed to recover. This implied a determination of the improvement in efficiency the Commission expected from the licensee during the period for which Tariffs were being determined. The Commission has also indicated a multi-period time path of cost/efficiency levels that would be allowed/required in the future. It is hoped that this would induce the licensee to take appropriate steps to reach acceptable levels of efficiency in a time bound manner. Surpluses resulting from improvements ahead of this time schedule would be shared between the licensee and the customer, and act as an incentive.

4.12 To the legitimate level of costs arrived at above; the Regulator needs to add the reasonable permissible return on Capital Base that the licensee may be allowed to earn. The Capital Base would need to be calculated, and the revenue required earning the reasonable permitted return on that, worked out.

4.13 There is a need here to guard against allowing a return on wastefully applied Capital. Typically a licensee would be required to commit a certain conventionally accepted volume of Investment to provide the level and quantum of service it provides. Use of invested funds in excess of this norm would imply that the available capital has not been efficiently applied. For example, it might have been wastefully applied in setting up unnecessary Guesthouses or Sub-Stations on political rather than commercial considerations. Thus a return should be allowed only on the legitimate level of investment that is required to service the scale of operations undertaken by the Licensee. The Commission has made the permissible prudent deviations from the provisions of the Sixth Schedule in light of these considerations, while resolving this issue.

4.14 In deciding the rate of return to be allowed on the legitimate capital base, so determined, it needs to be kept in mind that typically, in newly reformed scenarios, the customer in the short run will almost necessarily be burdened to some extent by inherited inefficiencies of the licensee. In these circumstances, it would perhaps not be prudent to allow the licensee the rate of return that would be required to attract new efficiently performing capital into the business. It is the belief of the Commission that the licensee must earn the required return by raising efficiency to more acceptable levels, rather than be rewarded without justification on a disingenuous cost plus method, at the expense of the consumer. The Commission has kept this consideration in mind, while deciding this issue.

4.15 This analysis reveals that the Commission was required to determine as to where to initially draw the line between what is and what should be, and the pace at which to shift this boundary towards the ideal norm, over time. In doing so the Commission needed to strike a balance between ensuring the viability of the licensee and protecting the interest of the consumer. Going too far too soon could unduly hurt the Licensee, while doing too little would be unfair to the consumer and undermine the very purpose behind Regulation. The exact manner, in which the Commission has exercised this discretion, is discussed in this order.

4.16 The gross inherited inefficiencies alluded to here, highlight the need to regulate current and future investments of the licensee. This would ensure that past mistakes are not repeated, and enable investment decisions to be made on efficiency grounds. This would minimize the possibility of these investments imposing an undue burden on the Licensee and Tariffs, in future years. The Commission resolves to endeavour in this direction.

4.17 Having arrived at the exact level of Costs, inclusive of return on Capital Base, that the licensee is to be allowed to recover, the very crucial issue of determining the Tariff structure that would allow this to happen needs to be resolved. In other words, it needs to be determined as to what is the price each consumer category should pay for electricity. Economic Theory offers some guidelines that are helpful in resolving this issue.

4.18 For the Economic criteria of Efficiency to be satisfied, prices of goods and services must equal the marginal cost (inclusive of externality costs and benefits) of producing them. This ensures that all consumers of the good place at least as much value on the unit of the commodity they consume as it incrementally costs society to produce it. Violation of this condition implies that resource allocation in the economy is in-optimal. A price below the marginal cost implies that the commodity is overproduced, and at the margin the commodity is consumed by consumers whose valuation of the commodity, as measured by the price they are willing to pay, is below the cost society incurs in producing that commodity. This implies a wasteful use of resources. By the same logic, price exceeding the marginal cost implies an under-allocation of resources to the production of that commodity, and a lost opportunity for welfare enhancement in the form of un-served potential consumers, rationed out by the high price, whose valuation of the good is higher than the marginal cost incurred by society in producing it.

4.19 The Profit Maximizing motive on the part of producers leads to the fulfilment of this condition in competitive situations. However, in non-competitive situations, producers tend to exploit their monopoly power and keep the price above the marginal and average cost, and earn abnormal profits. This has necessitated the need for antitrust policies aimed at creating competition, where possible, and Regulation or the Public provision of goods where Natural Monopoly situations exist.

4.20 The electricity Transmission and Distribution business is in the nature of a natural monopoly, since duplication of the Transmission and Distribution infrastructure for a given area of supply would be socially wasteful. Traditionally, the Public provision of these services was the favoured option. However, the perverse set of incentives, and political rather than sound commercial considerations in decision making, that came to typify the Public Sector, led to gross inefficiencies. The World over, this led to initiation of steps towards Privatization/Corporatization within a regulatory framework. In UP too, this is the environment in which the Commission is expected to discharge its role. While it is believed that eventually competition based on sharing a common Transmission and Distribution infrastructure would do away with monopoly profits and the need for Tariff fixation, in the interim it remains an important responsibility of the Regulator.

4.21 Given this rationale behind the requirement for the Regulator to fix Tariffs for the Electricity Supply Utilities, we need to examine the practicability of adopting marginal cost pricing, which, as we have seen, is the optimal pricing rule on efficiency grounds. Implementation of Marginal Cost pricing for the products of Natural Monopolies poses a problem on account of the fact that the Marginal Cost curve for them tends to be below the Average Cost curve, which is falling. Hence fixing a price equal to the marginal cost in these circumstances would imply that it would be less than the average cost, and force the Utility to incur a loss. This would make sustained private provision of the good impossible. It is sometimes argued that the price may be fixed at the long run marginal cost of supply attributable to newly created capacity. The expensive nature of additional capital investment required to expand supply capacity in the long run, makes this marginal cost, inclusive of capital cost, high, compared to the prevailing average cost of supply arising from depreciated plants/infrastructure. This would, however, run into the problem of giving the licensee excessive return on the old infrastructure.

4.22 While several alternative solutions have been suggested to address this dilemma, the simplest solution, offering the greatest ease of implementation, is based on pricing methods aimed at recovery of the average cost of supply per unit. Its simplest variant implies that the Regulator allows a price P per unit of electricity supplied, such that, , where C is the total cost of supply inclusive of the required legitimate return, and Q is the total quantity supplied. This implies that PQ (Total Revenue) = C (Total Cost), and the Utility recovers legitimate costs and earns a fair return. Extending this principle to a situation in which there are several consumer categories, who may potentially be charged different prices, we can write the average cost pricing rule as, , where Pi, Qi, for i = 1 to N, are respectively the prices charged and quantities supplied to each of the N consumer categories. A more restrictive version would require that prices Pi, be set such that , where Ci is the total cost incurred in supplying power to the ith consumer category. This implies that each consumer category is charged a price equal to the average cost of supplying power to that particular consumer category, which approximates the efficiency principle described above, and is desirable on those grounds.

4.23 It is noteworthy to mention that in the case of the Power Sector, where a major fraction of electricity generation still comes from fossil fuels, a negative externality exists in the form of pollution resulting from the generation process, which raises the Social Marginal Cost above the Private Marginal Cost. Hence an Average Cost Pricing rule, which raises Electricity Tariffs above the Private Marginal Cost, in all likelihood may prove to be optimal on efficiency grounds.

4.24 These approaches often referred to as the Rate of Return (ROR) method of Tariff fixation, however, have a major shortcoming in the form of a cost pass through tendency. It encourages cost escalation and inefficiency on part of the Utility. Given the information asymmetry that exists between the Regulator and the Power Utility, the former is not in a position to verify the legitimateness or veracity of the cost data provided by the Utility, without non-trivial and expensive monitoring, which is not feasible. The cost pass through tendency also diminishes the possibility of productivity gains to be passed on to consumers. This approach also suffers from the shortcoming of being intrusive and encourages regulatory interference in the realm of Management.

4.25 Yardstick regulation, where the costs allowed to be recovered are set in accordance with objective norms obtained from performance data of efficiently performing peers, is a suggested alternative. This, however, suffers from the difficulty associated with arriving at the yardstick in a non-controversial way, since the situation of each utility is largely unique, and possible peers to be emulated are likely to be diverse in their characteristics.

4.26 These difficulties have led regulators to the adoption of Performance Based Regulation. The popular RPI-X approach belongs to this genre. The Price Cap version of this approach requires that Tariff restrictions on the Utility be such that the Tariff for a consumer category i in the year t, Pit, for all i, collectively satisfy the following condition:

,


where, Wi are appropriately chosen weights to arrive at the weighted average price. These weights may ideally be taken as the quantity/revenue shares of various consumer categories in the overall electricity consumption. It is important for these weights to remain in line with the relative consumption profile prevailing across the consumer mix to prevent an opportunity for the Utility to manipulate the supply mix to earn higher profits at the expense of the certain Consumer categories. RPI is the percentage change in a suitably chosen price index, and X is a productivity improvement percentage determined by the Regulator. Thus, this imposition on the regulated Utility implies that the change in the Weighted Average Tariff from year to year must satisfy certain restrictions, in the form of incorporating a declining tendency on account of productivity improvement, while limiting the increasing element in tariffs to the price inflation faced by the Utility. This approach abstracts from the need to scrutinize and micromanage costs, and puts the onus on the Utility to improve productivity and minimize costs in its own self-interest. It leads to efficient price differentials across various supply categories, ensures simplicity of operation and is especially suitable for a small and unchanging number of price categories. This formulation, however, suffers from the shortcoming of being too restrictive in the price structure allowed to the Utility. For instance pricing innovations like Two Part Tariffs would not be permissible within it, and would require a modified formulation.

4.27 Controls in the form of Maximum Permissible Revenue Yields that also impose the RPI-X efficiency improvement requirement on the Utility have been offered as a solution. The basic formulation of this control is as follows,


Thus, this formulation implies that the average revenue per unit that the Utility may realize would differ from the maximum average revenue allowed in the previous year (net of the K factor adjustment), Pt-1, by a factor not exceeding RPI-X percentage points. The factor Kt is an adjustment on account of the fact that the tariffs approximately fixed initially to ensure revenue yields in compliance with this control might lead to an over or under recovery of the Total Allowed Revenue by the end of the period, which needs to be appropriately adjusted in the next period. Thus Kt is the adjustment carried forward to the year t from the year t-1. Recursively substituting for Pt-1, the formula can be written as,

,

for the Tth period, where P0 is the Maximum Average Charge allowed in the initial regulatory period. This formulation can be rearranged as,




It implies that the Maximum Total Revenue allowed to the utility grows in proportion to the number of units sold, which is based on an underlying assumption that the legitimate costs of the Utility grow in proportion to the number of units sold. However, in practice costs may depend on both volume of sales, and number of customers serviced. An appropriate Growth multiplier GT can be introduced in the equation by replacing P0 with P0*GT, to incorporate this causation and reduce the Utilities exposure to risk on this account.
Further, for cases where there are a large number of Consumer categories, the Maximum Initial Average Revenue allowed (P0) would be a weighted average for the N consumer categories, depicted by . The Pi0's for each category i in the initial year 0, should be chosen to reflect the relative costs of supplies across consumer categories, voltages of supply, time of supply etc represented by these Pi0's. This would make them broadly compatible with the Efficiency Criteria indicated above. They may be revised from time to time if the underlying realities and priorities change.

4.28 It is noteworthy that this formulation requires an initial selection of these Pi0 weights by the Regulator to indicate the priorities and objective cost of supply realities recognized by it. Ideally all the elements of the formula to be determined by the Regulator should be known in advance. The computational basis for Pass Through items, with appropriate devices for cost control in these expenditures, should also be specified in advance. Beyond this, the Utility should not be micromanaged, and should be left to fix its own Tariffs for individual categories in each successive year so as to be within the Revenue Yield restriction. Micromanagement by the Regulator could introduce distortions that would be inefficient on Economic grounds. There is, however, some need to check any tendency on the part of the licensee to artificially price out certain consumer categories less convenient for it to service and favour others in turn, even while complying with the Revenue Cap in an overall sense. There could be an appellate process for redressal of such grievances, if any. There is also a need to guard against the KT adjustment factor becoming a means for the Utility to get compensated for under realization of revenues on account of inefficiency.

4.29 Ways and means for sharing the surpluses arising from productivity improvements greater than X, between the Utility and the consumers, can be built in. A series of X's for future years can be pre-announced by the Regulator, to indicate the Productivity improvements expected from the Utility, and enable it to plan in advance for them.

4.30 The Commission recognizes that this state of the art formulation requires the Power Sector Utilities to be working at reasonably accepted levels of efficiency, with prevailing pricing structures fairly close to underlying costs, and commercial considerations governing Utility actions, before it would be prudent to give them the autonomy and freedom to determine Tariff Structures within the confines of the Price/Revenue Caps envisaged in these formulations. Sadly, these conditions do not exist in the State at this stage.

4.31 Having examined these alternative Tariff formulations, the Commission decided to adopt a hybrid method based on the Cost Recovery (ROR) approach that would allow the cost of supply reported by the Utility to be recovered after adjusting it downward by an appropriate X percent productivity improvement requirement. Tariffs have been conceived as two-part tariffs. It is noteworthy that the inefficiency in the form of a distortion in the Consumers' Income allocation decisions, caused by charging an average cost price as opposed to a marginal cost price, would be removed if a two-part tariff comprising a fixed part to cover the fixed cost and a variable part to cover the marginal cost is charged. The formulation adopted can be written as,


,


where the superscripts V and F represent the fixed and variable part of the price charged to the ith consumer category, and ni, depending on the category, is the number of consumers or total KVA demand or total HP in the ith consumer category, with i=1, 2, --- N. The fixed charge PF is defined as per consumer, per KVA or per HP, depending on the consumer category. The other symbols have their usual meanings defined above. It would be appropriate to mention that this approach is in broad conformity with cost plus (ROR) method indicated in the Sixth Schedule.

4.32 In adopting this method, and determining the Tariffs for various Consumer Categories, the Commission has carried out a rationalization of the Tariff Categories and attempted to reduce the distortions in the prevailing Tariff Schedule. On grounds of optimality, economic principles require that if prices across consumer categories are required to deviate from the efficient prices indicated above, they must do so according to the Ramsay Rule, which is aimed at minimizing the welfare cost of such deviations. This would make these prices inversely proportional to the elasticity of demand for the various consumer categories. A strict adoption of this provision would make prices high for consumers whose use of electricity constitutes a necessity, and low for consumers who have the flexibility to shift to other energy sources. This could be in conflict with certain Social objectives that the Political leadership might seek to achieve through the Tariff structure. While it is debatable as to where on this elasticity spectrum the economically weaker sections lie, cross subsidies have often been implemented to lower their Tariffs on equity considerations like, ability to pay and social objectives. However, given the very shallow nature of the market for Power in UP, it is debatable as to whether many of the beneficiaries qualify as economically weaker sections.

4.33 Thus, while not denying the logic for subsidizing the cost of power to a narrow range of economically marginal consumers on these Social considerations, the Commission finds little logic for the huge element of cross-subsidy implied in the existing Tariff Schedule, for which the State has paid, and is continuing to pay, a heavy price in the form of industrial stagnation, shift to socially wasteful captive sources, and wasteful electricity use by subsidized sectors leading to in-optimal depletion of ground water and other resources. These Social objectives, on a limited justifiable scale, can be better met through provision of Subsidies through the general budget. However, while recognizing the inappropriateness of unwarranted and excessive cross-subsidies, the Commission feels that these imperfections cannot be done away with completely in one go. Thus, while not entirely doing away with cross-subsidies, the Commission has reduced these imperfections as the starting point in a progressive time bound transformation to distortion free Tariff Schedules, where the Tariffs across Consumer Categories are compensatory in nature and increasingly reflect the underlying cost of supply.

4.34 Subsidy provided by the Government has been applied to reflect the priorities indicated by the Government.

4.35 Although there is no necessary economic or legal logic for keeping prices for KESCO and NPCL consumers at the same level as UPPCL consumers, the Commission has felt it prudent in the current climate to maintain this uniformity for the moment. As conceptions on the subject mature in future years and acquire a commercial, rather socio-political basis, the Commission would act accordingly.

4.36 The X percent productivity improvement factor imposed on the Licensee in the form of mandating savings through adoption of efficiency improving requirements like merit order purchases etc., is also aimed at a transformation in the desired direction. A time path comprising future values for the X factor, specifying the underlying efficiencies they imply in the form of requirements for metering, improvements in collection efficiency, reduction in T&D losses etc., have also been specified. A provision for sharing gains from productivity improvements in excess of the X percent requirement between consumers, employee groups and the Corporation has also been spelt out.

4.37 An application of the Marginal Cost principal in the form of Time of Day Tariffs, which recognizes the higher marginal cost of peak period power purchases and the cost of additional infrastructure required, to meet this peak demand, is recognized by the Commission. The goal of hundred percent Metering in a time bound manner has been kept as a requirement to enable its implementation in future years.

4.39 Thus, the Commission hopes that the directions given in this order would create the environment for a less intrusive and light-handed Tariff Regulation Regime in the near future. In introducing the changes indicated above, the Commission has been conscious of the need to select an optimal pace, to avoid excessive revenue risk exposure to the Licensee, and rate shock to the consumer. Requirements for data collection on various essential variables to enable introduction of further refinements in the future, have been spelt out to the Licensees. This includes data to enable calculation of cost of supply across consumer, voltage, and time of day categories.

4.40 A major concern that is recognized by the Commission at this stage is the uncertainty associated with the degree of responsiveness the various productivity improving inducements are likely to evoke from the Distribution Utilities, given the constraints of their structure and environment. The Commission feels that the speedy creation of an industry structure comprising utilities that respond to regulatory inducements should be the immediate goal of the reform process.



CHAPTER 5 UPPCL's Proposal: The Annual Revenue Requirement

Part A: The Proposed Annual Revenue Requirement

5.0 UPPCL's proposal envisages sale of 24,729 MU of electricity during 2000-2001. This includes sale of 148 MU to NOIDA Power Company Limited and 2332 MU to KESCO. In order to meet this demand UPPCL proposes to purchase 38,007 MU on the assumption that the total Transmission and Distribution losses will be restricted to 36.55% (as against the current estimated level of about 41.5%). The financial implications of the proposal are as follows:

Description Amount (Rs. Crore)
Estimated cost of power (38007 MU) 5389
Return on Equity Nil
Interest burden 453
Transmission & Distribution Expenses  
(i) Wages and salaries 841
(ii) Other expenses 279
Bad debts 235
Depreciation 394
Other expenses 666
Contribution to employee fund 204
Special appropriations to cover previous year losses 236
Total revenue requirement 8687
Non Tariff income 69
Subsidy 800
Net Revenue requirement at current tariff 7818
Uncovered gap 1561


5.1 UPPCL has proposed to cover this gap by an average Tariff increase of 24.99%. The Tariff increase proposed varies across consumer categories. The highest increase has been proposed for public lighting, followed by domestic and commercial un-metered categories. The lowest increase proposed is for railway traction. The proposal is summarized in the table below:
Table 4: Tariff Increases Proposed by UPPCL

Consumer category Average Current Tariff (Rs./KWh) Average Tariff Increase (%)
Domestic Un-metered 1.07 53.85
Domestic Metered 1.88 40.00
Commercial Un-metered 2.05 50.00
Commercial Metered 4.39 26.00
Industrial-Small/Medium 4.36 16.00
Industrial-Arc furnaces/Rolling Mills 4.18 16.00
Industrial-Large/Heavy 4.90 15.00
Industrial-Mushroom/Floriculture 3.22 16.00
Public Water Works 2.79 22.00
Railway Traction 4.36 10.00
Agriculture-PTW 0.51 37.50
Agriculture-STW 1.13 35.00
Agriculture-World Bank Tube wells 1.78 35.00
Agriculture-Pump Canals 3.92 25.00
Public Lighting 1.19 71.00
Other States 0.91 00.00
NPCL 3.52 18.06
KESCO 2.47 22.45

These increases have been worked out assuming that the increase would be applicable for the full year. The entire subsidy of Rs.800 Crore has been assigned to the Agriculture-PTW category.

5.2 The methodology used by UPPCL to project consumption is as follows:

(1) For domestic, commercial, railways, public water works, and public lighting sector, the actual consumption for 1998-1999 has been used as the base figure. This has been projected for the subsequent two years using the compound annual growth rate (CAGR) for the previous 7 years. However, for 1999-2000 the resultant figure has been lowered by 10%.
(2) In case of industry a similar procedure has been used to estimate the consumption in 1999-2000. Additionally, it has been assumed that in 2000-2001 there will be no growth in industrial consumption. According to the calculations provided by UPPCL, consumption of electricity by the industrial sector in 2000-2001 will be 10% less than in 1998-1999. As realization of revenue per KWh of electricity consumed is higher in industry this step has resulted in, lowering the estimated revenue receipts of UPPCL and a larger gap between expenditure and income.
(3) In agriculture, the initial estimate of consumption by private tube wells has been reduced by UPPCL on the basis of their Consultant's Report on the estimated use patterns. Since there is no metering in this sector, the entire estimate of consumption is based on the assumption of the intensity of use of pump sets. The estimate for other components of agriculture sector has not been revised.
(4) Un-metered consumption in the domestic sector has also been revised by assuming a consumption norm lower than what UPPCL had earlier assumed.

5.3 In 2000-2001 UPPCL plans to receive 38007 MU from the generating stations of UP Rajya Vidyut Utpadan Nigam Ltd. and UP Jal Vidyut Nigam Ltd. Of this 18315 MU is to be from the former and 5408 MU from the latter. In addition, purchases from the central generating stations comprising NTPC, NHPC and NPC are proposed as follows: -

NTPC  10975 MU
NHPC & Others  2943 MU
NPC  365 MU

In 1998-99 the erstwhile UPSEB had received 15927 MU from the central generating stations. Firm data of electricity purchased in 1999-2000 has not been made available. In the ARR and Tariff Filing the figure of import of energy was given as 15986 MU. However, vide UPPCL's letter No. 619-CE (PS)-SAI-Grid Code dated 29.5.2000 the total import of energy from central generating stations was given as 17193.73 MU. In another communication UPPCL has stated that in 1999-2000 the import of electricity from the central generating stations was 17467.74 MU.

5.4 The generation from the State's own generating stations for 1999-2000 has been communicated as 24229 MU (Flash report of UPPCL for March 2000) vide letter No. 688 /HC -Tariff UPERC dated May 25, 2000. Thus the total availability of power in 1999-2000 as given by UPPCL ranged from 41422 MU to 41696 MU. UPPCL's projection of total electricity availability of 38007 MU for 2000-2001 is obviously a gross under estimate. This has been done by assuming much lower purchase from the central generating stations (14283 MU) in 2000-2001 as compared to 1999-2000 (17193 MU -17467 MU).

Part B: Objections and Comments Received

5.5 During the public hearings, and through the post, in response to the Public Notice to that effect, various Consumer Groups, Industries Associations and individual consumers conveyed their comments and objections on the UPPCL Tariff petition to the Commission. The salient aspects of these submissions are discussed in the succeeding paragraphs.

5.6 Various stakeholders have raised the issue of the inappropriateness of Minimum Consumption Guarantee (MCG) charges being charged by UPPCL. Consumer groups have contended that consumers tend to use more electricity just to enable them to reach the consumption level that covers MCG. Many groups/persons have proposed that a two-part tariff structure should be introduced and MCG/minimum charges should be done away with, in a phased manner. Industrial consumers have stated that MCG charges should be proportionately adjusted on the basis of hours of supply. UPPCL/KESCO have on the other hand argued that abolition of MCG/minimum charges will substantially reduce revenue realization and a much higher increase in energy charges may be required to cover the revenue gap.

5.7 UPPCL has estimated purchase of energy in 2000-2001 to be 38007 MU, which is lower than the purchase in 1999-2000. Consumer groups have stated that the quantity purchased should not be reduced. They also objected to the revision of Tariff and have stated that the main reason for the proposal to revise Tariff is the power loss of 41%. This loss is largely due to theft, poor metering, incomplete billing, non realization of bills and inefficient management, for which honest consumers should not have to bear the burden. They have also stated that the retail tariff structure proposed by UPPCL does not include differential tariff through Time of Day metering, to provide incentive for using electricity during lean and off peak hours. Another suggestion given was that the separate rate structure for continuous industries should be replaced by levying a special charge on peak hours on the basis of prior authorization. Objections were raised against the proposal to increase wage cost by 6% and expenditure on administration by 10%. Some consumers also stated that the average increase in power Tariff should not be more than 10%, as the current Tariff was made effective only in January, 1999.

5.8 There were suggestions that the increase in Tariff to agriculture and unmetered consumers should be minimum because this category consists of poor people. However, at the same time many consumers also wanted improvement in the quality of supply of electricity to agriculture consumers. There was considerable opposition to the proposal to increase Tariff for domestic metered consumer by 40%. Similarly, it was stated that the proposal to increase Tariff by 57% in the case of domestic consumers with unmetered supply was also very high. In case of industries, almost all the Chambers of Commerce and Industry groups have complained that the current rates were already higher than in other States, and the proposed hike in Tariff would make industries in the State uncompetitive. It was also stated that Tariff for Arc and Induction furnaces is above the average cost of supply and any further increase will affect these units adversely. On the other hand entrepreneurs from neighbouring states have stated that power tariff for rolling mills in UP is low compared to the all India average. Industry groups also stated that there is a growing tendency amongst industrial consumer to have their own captive generation capacity. Further increase in Tariff would induce more and more industrial units to favour captive generation plants. Industrial groups also wanted that incentives should be introduced for consumers who are maintaining a Power Factor above 0.85.

5.9 The Railways representatives objected to the increase in Tariff proposed by UPPCL on the grounds that the Tariff being paid by the Railways was one of the highest in the State, and the high cost of power was due to managerial inefficiency. The Railway representatives also stated that if rates continue to rise regularly they might be forced to consider the option of buying their electricity requirement from Central Generating Stations. They further stated that concessions like rebate given to HT consumers should be made available to them also.

5.10 Several consumer interest groups complained about the poor quality of power. They mentioned that there were frequent unscheduled power cuts, trippings, voltage fluctuations and low frequency, which result in production loss and damage to equipment. Consumer groups wanted that the licensees should be penalized for not meeting quality standards. Several consumer groups and associations criticized UPPCL for supplying unmetered power to their employees. They stated that the employees are charged only a small fixed amount per month while their power consumption is very high.

5.11 Several organizations and consumers represented that high T&D losses are mainly because of theft, pilferage and connivance by UPPCL staff. The increase in Tariff would not be required if the licensees control T&D losses. Several consumer groups and industry representatives stated that large scale power theft is the result of political interference and illegal activities of the employees of the licensees. Therefore, distribution should be privatised and strict energy auditing introduced. A number of complaints were made regarding billing practices. For instance, it was stated that there was no time and date fixed for meter reading, and the bills were often received late, leaving insufficient time for payment. The need for the billing system to be streamlined was emphasized.

5.12 Consumer groups also opposed the prevailing cross subsidies, and stated that subsidy to agriculture and other categories of consumers must be limited only to the extent that it is borne by the State Government. UPPCL should not let any part of the subsidy be charged to the price of power levied on other categories of consumers.

5.13 Objections have been received regarding the interest rate paid on security deposits. It was suggested that the interest rate should be at par with fixed deposit rates. Consumers also suggested that they should be given the option of giving a bank guarantee instead of security money. Representatives of weavers represented that they should be charged a lower rate because of their poor economic condition.

Part C: The Commissions Findings

5.14 The Commission has carefully examined the information provided by UPPCL and the objections raised by other stakeholders. Reliable data has not been made available with regard to important issues. For the current year the availability of electricity from the Central and State generating stations has not been shown as a constraint and it seems that demand is constrained not by the availability of power or by lack of adequate transmission and distribution facilities to transmit this power but by the ability of UPPCL to collect sufficient revenue to pay for the electricity purchased. In all parts of the State consumers have consistently complained to the Commission about the lack of availability of electricity. In the circumstances when availability is not a constraint, all efforts should be made to provide adequate supply of electricity to the paying customers. In view of these considerations, the Commission has revised the estimate of consumption of certain categories of customers by projecting the base figures of 1998-1999 forward for each category of consumers using the respective historical CAGRs, without making any correction for the estimated dip in consumption in 1999-2000.

5.15 In arriving at these consumption estimates, the Commission has taken the same figures that are provided in the petition and reported in Table 5 below. The same CAGR rates as the one adopted by UPPCL have been used. However, these CAGR have been applied using 1998-1999 as the base. This has resulted in an electricity demand projection for 2000-2001 that is 531 MU higher. The Commission feels that it should be possible to meet an even higher demand. However, given the technical, managerial and financial limitations of UPPCL and the low productivity of its staff, a larger purchase of electricity may not be feasible. However, 25259 MU is the minimum consumption level that should be achieved.
TABLE-5: DEMAND PROJECTION FOR YEAR 2000-2001

SN CATEGORY Base Yr DEMAND
1998-99 MU
CAGR % (UPPCL) DEMAND MU
2000-01 (UPPCL)
DEMAND MU
(Proposed)
1 Inter State Customers 534 0 534 534
2 Traction (Railways) 868 4 910 938
3 Bulk Supply to Others 148 0 148 161
4 Light & Fan 6649 10 7726 8046
5 Commercial 1804 6 1968 2027
6 Industrial 5105 0 4921 5105
7 Public Lighting 395 12 475 496
8 Irrigation & Agriculture        
  (a) Private Tube wells 3203 0 3203 3203
  (b) State Tube Wells 1008 0 1008 1008
  (c) Lift Irrigation 921 0 921 921
9 Public waterworks & Sewage Pumping 546 5 582 601
10 Kesco     2332 2219
  TOTAL SALE IN MU     24728 25259

5.16 The Commission recognizes that estimating demand on the basis of past CAGR is not a very satisfactory method for projecting demand. UPPCL should use advanced statistical and econometric techniques to forecast electricity demand for the next 5 years. The Commission expects UPPCL to undertake the demand forecasting study immediately and use it for the ARR and Tariff filing for 2001-2002.

5.17 The Power Transmission system in the State consists of about 18500 circuits of 400 KVA, 300 KVA and 132 KVA lines, and 232 sub stations with 23000 KVA transformation capacities. A number of transmission lines are heavily over loaded and the system cannot withstand outages in any major sub station or line. In such a weak transmission and distribution system line losses are bound to be high. In order to strengthen the transmission and distribution system the most critical constraints faced need to be immediately addressed.

5.18 The question of estimating T&D losses is a complex one. If illegal connections are checked, consumption of electricity by all categories of consumers is metered, and meter readings are taken regularly, T&D losses would largely be determined by technical considerations. However, in Uttar Pradesh more than half the consumers are supplied un-metered electricity and the activity of meter reading is not performed regularly. In fact, the erstwhile UPSEB, and currently UPPCL have encouraged revenue collection on the basis of connected load rather than actual consumption. Categories of consumers where consumption is assessed include Agriculture and Irrigation (comprising Private tubewells, State tubewells, and Pump Canals), domestic consumers in rural areas, employees, serving and retired, of UPSEB, and commercial consumers in rural areas. The revenue assessment is either on flat rate or linked to connected load. Consequently consumption of electricity in these categories is based on estimates using predetermined norms. While the balance consumers are to be charged on metered consumption, in practice this does not take place due to non-accessibility of meters, defective meters, and doubtful and incorrect readings. According to the report by the Billing Cell of UPSEB, in February/March 1999 about 43 percent of domestic, 37 percent of commercial and 23 percent in small and medium industries categories with metered supply were assessed on presumed consumption for defective metering etc. Determination of the extent of assessed consumption is essential to recover revenue based on usage. This would also enable UPPCL to refine the estimates of T&D losses. For 2000-2001 UPPCL has estimated T&D loss at 40.55%, which represents 1% improvement in the loss estimated in 1999-2000. This consists of technical loss of 20% and commercial loss of 20.55 %. In the revised petition the projected T&D losses for 2000-2001 have been reduced further by 4% to bring about the over all T&D loss figure to 36.55

5.19 It must be emphasized that the T&D losses now being reported are significantly higher than what was earlier reported by the erstwhile UPSEB. From 1992-93 to 1997-98, the T&D losses ranged between 25.5% and 26.2%. According to the audited accounts of 1998-99 the T&D loss has been estimated at 26.86%. A similar situation exists in most States as T&D losses have been under estimated in the past. After the power sector reforms were initiated in Orissa, T&D losses in the State which were estimated at 23.8% in 1994-95 have been revised to 46.9% in 1995-96, 50.4% in 1996-97, 46% in 1997-98 and about 42% in 1998-99. Similar position has been observed in case of Haryana and Andhra Pradesh where too there has been a substantial revision in the earlier estimates of T&D losses. The main reason for this revision is that sample surveys have revealed that the use of electricity in agriculture has been over estimated in many States. Many consumers have objected to this sharp increase in distribution loss. They have contended that if electricity consumption in agriculture has been over estimated then those who have used electricity should be made to pay. They have also stated that the honest consumers should not be made to pay for theft and inefficiency of the licensee. The Commission has noted that the sharp increase in the percentage of T&D losses has come about because of the revision in consumption estimates particularly those of private tube wells. The figures before us now suggest that consumption in this sector had been highly over estimated. Even now the figures projected by UPPCL in the absence of proper metering are only estimates and are likely to change when better data is available.

5.20 Estimating electricity consumption in agriculture is a contentious issue. This problem has arisen because consumption of electricity in this sector is mostly un-metered. In Uttar Pradesh too tariff for private tube wells, state tube wells and small pump canals is charged per BHP of connected load. According to UPPCL, private tube wells are being supplied power on the rural supply schedule, which is currently about 10 hours per day. The average number of hours a pump set was utilized per day has been estimated at 6.56 for private tube wells, 11.66 for state tube wells, 15.22 for World Bank financed state tube wells and 6.8 for pump canals. On this basis UPSEB had estimated the consumption in agricultural sector as 9982 MU.

5.21 The U.P. State Electricity Board reviewed the consumption of private and State tube wells on the basis of a sample study of the number of hours electricity was supplied to private tube wells conducted in 1977, consumption of electricity by private tube wells estimated by the Tyagi Committee and the reports of the consultants. On the basis of micro level survey based on the study of 76 villages in 11 districts covering 299 private tube wells, Tyagi Committee had estimated the average annual running of private tube wells to be 563 hours in 1994-95. Based on this the consumption of private tube wells was estimated at 1596 MU annually as against 7594 MU estimated by the UPSEB. The Committee also estimated the water requirement for a model-cropping pattern on a 5-hectare holding. The model cropping pattern requires the private tube wells to operate for 1000 hours a year for irrigation and 100 hours a year for other operations like thrashing, chaffing etc. On this basis UPPCL estimated the consumption of electricity by private tube wells in 1999-2000 as 3121 MU as against consumption of 7594 MU based on earlier assumptions. For 2000-2001 UPPCL has adopted the Tyagi Committee's estimates based on model cropping pattern to estimate the consumption by private pump sets. For state tube wells it has been assumed that on average 85% of the state tube wells are in working condition and their average usage is 10 hours a day. In 1999-2000 UPPCL has estimated that total consumption in irrigation was 5122 MU comprising 3121 MU consumed by private tube wells, 1046 MU by state tube wells, 562 MU by World Bank financed tube wells and 393 MU by pump canals.

5.22 Regional variations in the usage of pump sets are another complicating factor. According to Tyagi Committee's survey the number of running hours per tube well per year was as low as 342 in Deoria while it was 774 hours in Kanpur Dehat.

5.23 Another survey carried out by the Indian Institute of Management, Bangalore in 1997-98 in four districts viz. Jaunpur, Mirzapur, Nainital and Almora has estimated the electric pump sets consumption in the State at 4667 MU as compared to 9437 MU reported by UPSEB. While this study is limited to only four districts, it confirms that there has been an over statement of electricity consumption in agriculture because of non-metering.

5.24 There is another source of over-estimation of electricity consumption in agriculture. UPSEB/UPPCL has been reporting electricity consumption of private tube wells by multiplying the cumulative number of pump sets energized by the estimated average consumption per pump set. However, the number of working pump sets is often much less than the cumulative numbers of pumps sets energized. In 1996 the Tata Energy Research Institute estimated that in Uttar Pradesh as against 749 million installed the number of pump sets actually working were only 332 million. If we rely on this estimate then the over estimation of electricity consumption is far more than is commonly believed.

5.25 UPPCL in its petition has stated that they are undertaking a study to determine more precisely the extent of technical and commercial losses. Consultants have been appointed and they have started the work of assessing T&D losses on a more realistic basis. The Commission would expect this task to be given a very high priority so that the findings of the study are available at the earliest. Without a detailed study based on a representative sample, realistic estimates of electricity consumption in agriculture will remain a contentious issue.

5.26 Apart from technical losses, which are discussed later, the extent of loss of a purely commercial nature reported as 20.5% is clearly unsustainable. Commercial loss is a euphemism for theft and corruption. If these losses are not brought down through system improvements and better management then all the other contemplated improvements of the system will be negated. At the current level of commercial loss dishonest consumers are imposing an implicit tax of about 20% on the honest ones. This is an unfortunate situation, considering that quite often, poorer consumers pay for the benefit of the relatively better off ones. This regressive implicit tax must not only be sharply reduced but also completely eliminated in the next few years.

5.27 The Commission has noted that UPPCL in the revised petition has lowered the T&D loss. This has been done on the basis of a Government directive, which clearly indicates that the State Government is equally concerned about this matter. However, it is not enough simply to lay down a target. Without an Action Plan, this target is not likely to be achieved.

5.28 Associated with this issue is the question of metering. The Commission has noted that the State Government has signed an MOU with Government of India, which inter-alia provides for:
1. Installation of meters at all 11 KV feeders by 30.9.2000.
2. 100% metering of all consumers by 31.12.2001.
3. On-line billing in 20 selected towns through computerization by March 31 2001.

5.29 To implement this plan UPPCL has prepared project reports and proposed them to Power Finance Corporation (PFC) for funding. We hope that UPPCL will actively pursue the project financing issues with Power Finance Corporation so that the targets agreed to in the MOU are achieved. The Commission would like to be appraised of the progress of investment as agreed to in the MOU with Government of India, on a monthly basis.

5.30 Once a complete monitoring system is in place, UPPCL should be in a position to account for all the energy that is received in such a way that responsibility is fixed at every level for the difference between received energy and the energy billed. Given the primacy attached to this norm, the Commission would expect UPPCL to devise a system by which regular monitoring of feeders in which meters have been installed is done.

5.31 The Commission has been informed that the UPPCL proposes to:
1. Repair and install capacitor banks and provide new capacitor banks at overloaded sub stations.
2. Maintain balance load on feeders and transformers.
3. Construct new 33-11 KV Sub stations and bifurcate LT lines for better load planning.
4. Follow demand management practices to reduce load in peak hours and a flatter the load demand curve.

5.32 For reducing non-technical losses UPPCL plans to regularize irregular connections, replace defective meters with new meters, provide tamper proof resistant meters to high revenue yielding consumers and persuade consumers to declare the actual load, which is often greater than the contracted load. If this plan is implemented with vigour, immediate improvements could result.

5.33 UPPCL has prepared a financial restructuring plan. Under this plan the technical losses are proposed to be reduced from 16% to 12.5% and commercial losses from 20.5% to 5% over the next decade.

5.34 The Commission feels that this target of loss reduction is very modest and should be revised. We propose that the technical and commercial loss (defined as the difference between the energy purchased and energy billed) should be brought down to 20 percent by 2005-2006. The year wise targets are given below:

Year Percent
2000-2001  36.5
2001-2002  32.5
2002-2003  29.5
2003-2004  26.5
2004-2005  23.5
2005-2006  20.5

In case UPPCL's actual performance is equal to the targets set, the permitted ROR on Capital Base for that year would be the rate approved by the Commission. For each 1% reduction in the gap between units billed and units input beyond the target fixed, 40% of the resulting additional gain in revenue shall be payable to UPPCL as an additional ROR on CB over and above the permitted return to which UPPCL may be eligible in that year.

Table 6: REVENUE REQUIREMENT FOR YEAR 2000-2001 (Rs. Crore)

SN ITEM AS PROPOSED AS APPROVED
A EXPENDITURE    
1 Purchase of Energy 5389.2 5100.53
2 T&D Expenditure    
  (a) Wages & Salaries 840.7 765.7
  (b) Others 279.3 279.3
3 Taxes (other than tax on income) 0 0
4 Interest 453 452.9
5 Legal Charges 0 0
6 Bad Debts 234.6 0
7 Auditor's Fees 0  
8 Depreciation 393.8 393.8
9 Other Expenses (Listed below) 666.4 352.2
  (a) Surcharge on overdue payables    
  (b)Funding of shortfall in collection    
  (c) Interest on working capital borrowings    
  (d) Rebate to Bundelkhand & Hill regions    
  (e) Interest and discount to consumers    
  (f) Cost of raising finances    
  (g) Commitment fees of World Bank loan    
  (h) Other charges    
10 Contribution to employee fund 203.8 203.8
11 Training expenses 0  
12 Less : Expenses capitalised -9.6 -9.6
B Special Appropriations    
1 Previous losses 236 0
2 Tax on income 0 0
3 WDV of intangible assets 0 0
4 Contributions to contingency reserve 0 0
5 Contributions to arrears of depreciation 0 0
6 Contributions to contingency reserve 0 0
7 Debt Redemption Obligation 0 0
8 Other special appropriation/regulatory charges 0 2.5
  Total Expenditure 8687.2 7541.13

5.35 For the current year the Commission accepts the T&D loss reduction target of 5% proposed by UPPCL in the revised ARR filing. This would bring down the technical and commercial T&D loss to 36.55%. At this level of loss the total energy requirement would be 38843 MU as against the figure of 38007 MU proposed by UPPCL. The main reason for this variation is the difference between the consumption estimates of different categories of consumers, proposed by UPPCL and what the Commission has accepted.

Table 7:COST OF POWER PURCHASE

PURCHASE OF ENERGY UPPCL UPERC
UPRVUNL 2492.6 2490.84
UPJVNL 187.1 189.28
CENTRAL SECTOR 2709.5 2420.41
TOTAL EXPENDITURE 5389.2 5100.53

Table 8: TRANSMISSION AND DISTRIBUTION EXPENDITURE (Rs. Crore)

T&D Expenditure Items UPPCL Proposal Accepted by UPERC
Wages & Salaries    
(a) Salaries 793.2 718.2
(b) Leave Encashment 47.5 47.5
SUB TOTAL 840.7 765.7
Others    
(a) Repairs & Maintenance 198.8 198.8
(b) Administrative & Miscellaneous 80.5 80.5
Total 1120 1045

Table 9: Interest Expenses (Rs. Crore)

Description UPPCL Proposal Accepted by UPERC
State Govt. Loans 0.0 0.0
Approved institutions loans 336.0 336.0
Debentures/Bonds 141.9 141.9
Security deposits 15.6 15.6
Less IDC -40.5 -40.6
Total 452.9 452.9


Table 10: Bad Debts

Description UPPCL Proposal Accepted by UPERC
Provision for bad debts 234.6 0.0

Table 11: Depreciation (Rs Crore)

Description UPPCL Proposal Accepted by UPERC
Depreciation 393.8 393.8

Table 12: Other Expenses

Description UPPCL Proposal Accepted by UPERC
Surcharge on overdue payables 225.2 0.0
Funding of shortfall in collection 240.8 0.0
Interest on working capital borrowings 2.5 175.0
Rebate to Bundelkhand & Hill regions 24.3 24.3
Interest and discount to consumers 120.8 120.8
Cost of raising finances 20.7 0.0
Commitment fees of World Bank loan 10.4 10.4
Other charges 21.7 21.7
Total 666.4 352.2

Table 13: Contribution to Employee Fund

  UPPCL Proposal Accepted by UPERC
Contribution to employee fund 203.8 203.8

Table 14: Expenses capitalized

Description UPPCL Proposal Accepted by UPERC
Expenses capitalized 9.6 9.6

Table 15: Special Appropriations

Description UPPCL Proposal Accepted by UPERC
Past losses 236 0.0

Table16: Other Misc. Expenses (Rs. Crore)

  UPPCL UPERC
Other expenses (Regulatory expenses) 0 2.5

5.36 The expenditure on wages and salaries has been proposed at 841 Crore. In addition, Rs.80.5 Crore will be spent on administrative and miscellaneous heads. According to the Annual Report on the working of State Electricity Boards and Electricity Departments published by the Planning Commission, UPSEB's administrative & establishment cost per kilowatt of electricity sold in 1998-99 was 50.04 paise In the same year, the all India average was 36.55 paise per KWh. Thus, UPSEB's expenditure on the administrative and establishment head exceeded the All India average by 13.49 paise per unit of electricity sold. In 1998-99 the total sale of electricity in the State was 28524 MU. If UPSEB's expenditure on administrative and establishment services were equal to the all India average it would have saved Rs. 383 Crore in that year. The position has not changed since then. Therefore, there is considerable room for tightening administrative and establishment expenditure, and it is reasonable to expect that expenditure on salaries and administration should not exceed the national average. For 2000-2001, we propose to effect a modest reduction of 3 paise per kilowatt of sale in the permissible expenditure, which is less than 25% of the difference between UPPCL's expenditure and the national average. This would result in a saving of the order of Rs. 75 Crore (3 paise x 25259 MU).

5.37 Bad debts: UPPCL has proposed that 3% of the total value of sale of electricity in 2000-2001 may be treated as bad debt and has sought to provide for it in the projected annual expenditure. According to the Electricity Supply Rules 1985 (Para 4.52 of Annex V of Appendix 5) a fixed percentage of dues from consumers (except for a slight variation in the case of large consumers) can be maintained as a provision for meeting debts that turn bad. This is to eliminate the need for case wise investigation at the time of creating a provision. Such investigation has to be conducted independently and in depth at the time of actually writing off a debt. A detailed study should be conducted periodically to ascertain the appropriate percentage for each category and to update the percentage so determined. One exception to the above rule is the case of high tension/large supply consumers. In such a case, individual bad debts can sometimes be large enough to affect any overall percentage. Recoverability of balance due from such consumers should be reviewed case wise and if the doubtful amount exceeds the fixed percentage, the amount of such excess should be additionally provided for. The State Government vide the Transfer Scheme notified on January 14, 2000 has made a provision for Rs.3518.65 Crore for bad and doubtful debts. After the provisioning only Rs. 883.80 Crore of debt remained in the books of UPPCL on 1.4.1999. In the Petition UPPCL has not given any details of the increase in receivables, their age and the category of consumers from whom these are due. Neither the erstwhile UPSEB nor UPPCL have undertaken any investigation on the arrears or fixed a percentage of dues for provisioning. Considering the fact the Transfer Scheme was notified only in January 14, 2000 the final transfer scheme is still to be notified, and provisioning has been done for the majority of the receivables up to 1.4.1999 there is no justification for providing 3 percent of sales in 2000-2001 as bad debt.

5.38 The Commission was informed that UPSEB had not framed any regulations for provisioning and writing off of unrecoverable dues. The same practice is being followed by UPPCL. This should be examined by the licensee and prudent accounting regulations framed with the consent of the Commission to ensure that irrecoverable charges do not continue in their books.

5.39 Other expenses: UPPCL has proposed Rs.666 Crore under this head, which consists of four components:
(i) Surcharge on overdues of current liability
(ii) Interest on working capital
(iii) Interest and financing charges
(iv) Rebate provided by UPPCL to consumers.

The bulk of this provision (Rs.466 Crore) is accounted for by surcharge on over dues payable to NTPC and other suppliers, and funding the shortfall in revenue collection. With the projected collection efficiency being less than 87%, 13% of current bills would remain uncollected. The financing cost of this has been computed at 24%. In this way the financing cost and working capital requirement of UPPCL has been estimated at Rs.1978 Crore, consisting of Rs.1160 Crore for meeting the surcharge on over dues, Rs.803 Crore for covering the shortfall in collection, and Rs.15 Crore for meeting the working capital requirement computed in accordance with Schedule VI. The total funding requirement as projected by UPPCL would amount to Rs. 1978 Crore which is equal to 3.16 months sale. The Commission has worked out the working capital requirement with modification to the provisions of Schedule VI of the Electricity Supply Act 1948 and this will be dealt with subsequently.

5.40 Cost of Power Purchase: UPPCL has estimated the cost of energy purchase in 2000-2001 as Rs. 5389 Crore. This cost has been derived on the following basis:
I. The entire energy available from UPRVUNL and UPJVNL will be purchased. The average purchase cost from UPRVUNL has been taken at Rs.1.36 per unit in accordance with the MOU between UPPCL and UPRVUNL. They have also agreed to work out the station-wise purchase price and enter into a power purchase agreement for 2001-2002. The purchase price for UPJVNL has been taken at 35 paise per unit. As in the case of State Thermal Stations an MOU has been entered into and PPAs' will be finalized for individual plants before the next year's Annual Revenue Requirement and Tariff filing.

II. After drawing the available energy from the State Power Stations, the balance requirement has been assumed to be drawn from the central generating stations. The share of Uttar Pradesh has been derived for each station and an equal proportion of this share is proposed to be utilized from each station such that the balance requirement is met.

5.41 UPRVUNL has total generating capacity of 3909 MW. Some of the plants in its portfolio are quite old. A comparison of the performance indicators for the coal based generating plants of the UPRVUNL with plants of the same size and age operated by NTPC and others is given in Annex-1. The comparative performance shows that, except for Annpara A&B, all the other power plants are performing poorly. To improve the technical and financial performance of these plants UPRVUNL will have to undertake R&M work coupled with restructuring of its organizational structure. The poor repair and maintenance of Thermal Power Plants has not been for lack of spending. The total expenditure by UPRVUNL for operation, repair and maintenance of its plants works out to about Rs.11.85 per unit of energy sent at the bus-bar. In comparison the average cost of operation, repair and maintenance per unit of energy sent at bus bar by NTPC was lower by Rs.3.97 per unit. Similarly the establishment expenses of UPRVUNL work out at Rs.11.88 per unit of energy sent to bus bar as compared to Rs.6.43 per unit for NTPC. The gap in the expenditure on fuel i.e. coal and oil including transportation per unit is even higher. It was Rs.76.34 for UPRVUNL as compared to Rs.65.34 in NTPC. There is a large gap in operating station heat rate, specific coal consumption and specific oil consumption in the state thermal generating stations and NTPC. It appears that the smaller thermal plants in the state are not giving the designed heat rate even after allowing for their age. Even the larger units of UPRVUNL are producing at a heat rate that is 100-260 Kcal/KWh higher, as compared to NTPC.

5.42 It is possible to lower the generation cost by improving plant availability. The all India average PLF in plants of 20-60 MW size, which are more than 27 years in age is about 40%. In case of UPRVUNL all the nine units except one of this vintage are performing much below this level. Similarly in the 100-110 MW group the all India average PLF for the same age of plants is 40-45% whereas in case of UPRVUNL 5 units did not reach this level. The 200-210 MW group requires immediate attention as the average PLF of UPRVUNL units is 51% whereas the NTPC unit of the same vintage is running at PLF of more than 80% with availability as high as 90%.

5.43 In respect of the central generating stations the Commission does not accept the proposal to buy energy on an equal proportional basis from all the plants. This is because electricity cost from these plants varies widely. In order to estimate the purchase cost of electricity on this principle, the Commission consulted the Northern Regional Electricity Board. On the basis of their advice and after consultation with UPPCL, it is proposed to estimate the total cost of energy purchased from the central generating stations by assuming that all available hydel power would be purchased. As for thermal power stations only that quantity would be purchased as would be determined by following the merit order principle of buying from the cheapest plant first and thereafter in the ascending order of generation cost. Annex 2 gives details of plants and the energy to be purchased from the central generating stations. On this basis the total cost of energy purchase works out to Rs. 5100.53 Crore, as compared to Rs.5389 Crore estimated by UPPCL in the Tariff Petition. The reduction would have been even more if the Commission had not projected a higher consumption estimate for 2000-2001.

5.44 Before we turn to the next issue, it is important to discuss the sale of Tanda Power Plant by UPPCL to NTPC. UPSEB entered into a MOU with NTPC for sale of Tanda power plant with 440 MW capacity against the dues of NTPC. Subsequently the Government of Uttar Pradesh vide Notification No. 154/P-1/2000-24 dated 14th January 2000 issued a transfer scheme for the transfer of this plant to NTPC. The State Government settled Rs. 1000 Crore of UPSEB dues through the sale of this plant.

5.45 The sale value of the plant is to be viewed against the original cost of Rs.607 Crore and the depreciated value of Rs.431.09 Crore. Against this transfer UPSEB agreed to purchase electricity at base tariff of Rs.3.75 per KW. Tanda is the most expensive source of electricity for UPPCL. Yet in 2000-2001 UPPCL proposes to purchase 1349 MU from this source. The Commission had specifically required the licensee to justify its proposal. UPPCL has given a very convoluted justification for the agreement with UPPCL. They have stated that the cost of generation of Tanda was Paise 339.26 per unit as it was operating at 22% PLF. They have further added Rs3.75 per unit as surcharge on the over dues of 1000 Crore. This too has been booked against the Tanda plant. The Commission is baffled by the logic of such an argument. UPPCL seems to lay the blame of their larger receivables arrears on Tanda and not on itself. The fact is that Tanda had no role in the running up of the over dues to NTPC. Nevertheless it is important to note that even at mere 22% PLF the cost of generation of Tanda was only Rs.3.39 per unit. In 2000-2001 electricity from the same source is proposed to be purchased at a higher price of Rs.3.75 per unit.

5.46 The agreement between UPSEB and NTPC requires the former to purchase the entire output for Tanda. Since Tanda has been taken over by NTPC it should have been treated as a Central Station and the State allocated its share. This would have implied that UPPCL buy only 33% of electricity generated in Tanda which is U.P's share in other recently set up NTPC plants. According to a study done for the Commission by TERI, the option would have enabled UPSEB/UPPCL to save substantially over the next ten years. We have accounted for the fixed charges payable to NTPC according to the agreement on Tanda Generating Station. However, we have assumed no purchase of power from this station.

5.47 According to the transfer agreement tariff for Tanda TPH is to be fixed by CERC. UPPCL has not approached CERC for this. It is in UPPCL's interest to do so quickly. The Commission directs UPPCL to re-examine the present agreement and approach CERC for tariff determination within one month of this order.

5.48 It is relevant to point out that the U.P. Power Reforms Act was notified in July 1999 but was made effective only from 14th January 2000, the same day when the Transfer Scheme for Tanda was notified. It appears that the Commission was kept out of this transaction so as to avoid any scrutiny of the terms of the agreement for the sale of Tanda generating station. We also get the impression that the alternatives to the agreed terms of sale were not explored in detail. We get this impression because when we asked for information regarding the alternative proposals made to NTPC, none was made available.

5.49 At present UPPCL is purchasing energy from NTPC on the principle that the total energy cost including fixed cost are proportional to the energy drawn. This system would change once the Availability Based Tariff comes into force. Under the proposed Availability Based Tariff system UPPCL will have to pay fixed costs in proportion to its allocation of power, irrespective of the amount of energy drawn. This would make several of the NTPC plants cheaper at the margin than the plants of UPRVUNL. Therefore, it is necessary for UPPCL to introduce a system by which it can schedule its supplies in accordance with the merit order scheme. Further, there should be an attempt to draw up efficiency norms for each plant and provide for full coverage of fixed cost in proportion to the norms being achieved. Purchases can be made on the basis of comparing the marginal cost of plants of UPRVUNL and UPVJNL with those of the Central generating stations. Such a system should lead to improved efficiency and ultimately lower the cost to consumers. Since UPPCL is in the process of finalizing the power supply arrangements from UPRVUNL and UPVJNL, the Commission expects that these arrangements would be such as would promote efficiency in the functioning of generating stations in the State.

5.50 The Commission would like to emphasize that purchase from the plants of UPRVUNL and UPVJNL should not be assumed as a matter of course. The principle to be followed in power purchase should be one of cost minimization. If buying more from the central generating stations can reduce the total cost then this should be done so that the burden on the consumer is minimized and resources of the State are utilized in an optimum manner. However, given the fact that in 2000-2001 the State Generating Corporations have proposed the pooled cost which is lower that the average cost of Central generating stations, the Commission accepts that UPPCL will buy the entire Power available from the UPRVUNL and UPJVNL, after which they will purchase from the central generating stations.

5.51 Capital Base: UPPCL has indicated Rs. 9102 Crore as the original cost of the fixed assets for 2000-2001. The audited balance sheet of UPSEB for 1998-1999 gives the value of fixed assets at Rs.7273 Crore, whereas the value of these assets is estimated at Rs.7283.53 Crore in U.P. Electricity Reforms Transfer Scheme-2000. The licensee has included Rs.1228 Crore as the capital works in progress in the capital base. No detail of the works in progress has been provided to the Commission. The capitalization of the capital expenditure of works in progress is based on the following schedules: -

Table 17: Capitalization Schedule For Capital Expenditure During Year 1

Capitalization Schedule Year 1 Year 2 Year 3
Transmission 20% 30% 50%
Distribution 75% 25% 0%
Others 100% 0% 0%

Table 18: Capitalization Schedule For Opening Capital Works in Progress (existing as on 01/04/1999)

Capitalization of existing CWIP Year 1 Year 2 Year 3 Year 4
Transmission 25% 25% 25% 25%
Distribution 25% 25% 25% 25%
Others 0% 50% 50% 0%

5.52 The Commission considers the methodology adopted by UPPCL for capitalization of assets as incomplete as they have not confirmed whether the assets created during the year were productive and useful. This is an essential requirement of Sixth Schedule for expenditure to be included in Capital base.

5.53 Working Capital Requirement: Average cost of stores - In the ARR and Tariff Application the cost of stores has been estimated at Rs. 100 Crore. This cost consists of two components:
(i) Operation and Maintenance
(ii) Construction stores
The value of operation and maintenance stores has been arrived at on the basis of a requirement of 70 days expenses for repair and maintenance, which amounts to Rs.37 Crore (appropriate fraction of Rs. 190 Crore). In addition, construction stores at the rate of 5.1% of capital works in progress have also been added to the working capital requirement. The total requirement of working capital for stores is estimated at Rs.100 Crore comprising Rs.37 Crore for operation and maintenance stores and Rs.63 Crore for construction stores. The requirement of stores and materials for 70 days is quite high and should be reduced. However, considering the state of working of the licensee, the Commission agrees to provide for this for 2000-2001. However, construction stores are a part of the capital works in progress and no separate provision need be made for this.

5.54 UPPCL has proposed Rs.547 Crore towards average cash and bank balance. In Commission's view the fund required for one month of expenditure on employees cost (including leave encashment and terminal benefits) and administration and miscellaneous expenses should be appropriate for meeting the working capital requirement. Hence Rs.110 Crore have been provided for this. The details are given in the following table:

Table 19: Working Capital Provision to Meet Indicated Expenses

Name of the Item Amount in Rs Crore
Wages & Salaries 841
Administrative & Miscellaneous Expenses 80
Contribution for employee fund for terminal benefits 204
R&M expenses 199
Total 1324
Expenditure allowed (1/12th of total) 1100

5.55 The Commission has noted that the licensee has not sought any return on the capital base for 2000-2001. Strictly on the basis of the provisions of VI Schedule, the working capital requirement would be only Rs.147 Crore. However, considering the low collection in 1999-2000 and in 2000-2001 up to June 2000, and the total expenditure incurred/to be incurred by UPPCL during the full year, the Commission has provided additional funds for working capital. The Commission has taken two and half month's sale of power as working capital requirement. This amounts to Rs.1303 Crore. As Rs.147 Crore have already been provided for stores and wages & salaries etc., Rs.1156 Crore is additionally required. We expect that in view of the poor financial health of the utility and the need for continued State support for restructuring UPPCL, the State Government would issue a guarantee for borrowing working capital. With a State guarantee UPPCL should be able to borrow this amount at 15% interest. On this basis the cost of interest would be Rs.173.4 Crore, which may be rounded to Rs.175 Crore. This expenditure is being provided for meeting the cost of the working capital. This liberal provision is a deviation from the provisions of the Sixth schedule. However, the Commission is providing for this additional expenditure taking into account the flow of funds, collection efficiency and the past and current performance of the licensee. The Commission would review the working capital requirement in the following years.

5.56 Net Capital Base: The Commission has taken note of the fact that the capital base given in the transfer scheme is provisional and would be revised. The licensee has also not sought any return on the capital base therefore the provisional net capital base is given below:

Table 20: Provisional Net Capital Base (Rs. in Crore)

S. No. Name of Item UPPCL UPERC
Capital Base Items - Positive
1 Original cost of fixed assets 9102 9102
2 Cost of intangible assets 0 0
3 Capital work in progress 1228 1228
4 Working Capital
a). Average cost of stores 100 37
b). Average cash and bank balance 547 110
Total of Positive Elements 10977 10477
Capital Base Items - Negative
5 Accumulated depreciation 3101 3102
6 Approved loans 6242 6242
7 Security deposits from consumers 537 537
8 Consumer contributions 431 431
Total of Negative Elements 10312 10312
  Net Capital Base 665 165

5.57 The revenue billed collection target and the actual revenue collected by UPSEB /UPPCL since 1995-96 is given below:

Table 21: Billing and Collection (Rs. in Crore)

  1995-96 1996-97 1997-98 1998-99 1999-2000
Sale of Power (Billing) 3829 3992 4793 5304 6033 (estimated)
Target Revenue Collection 4015 4100 5075 5520 6250
Actual Revenue Collection 3447.89 3587 4324 4594 5077
Collection as % of target 85.88 87.50 85.21 83.23 81.23


In the ARR submitted by UPPCL, the billed amount for 2000-2001 at the existing tariff has been estimated at Rs.6257 Crore. On the basis of revised consumption estimates determined by the Commission, this figure comes to Rs.6283 Crore. The details of this are given below in Table 22.

5.58 Revenue collection as a proportion of total billing including meter and late payment surcharge declined from 87.5% in 1996-97 to 81.23% in 1999-2000. Further scrutiny of the numbers provided by UPPCL shows that collection from the non-Government sector in 1999-2000 was only 79.3% of the target as compared to about 85% an year earlier. This clearly shows that the performance of UPPCL in raising revenue has been unsatisfactory. This is worrisome because collection efficiency from private consumers has declined. The licensee has promised to improve the collection efficiency by 5% during the year. UPPCL reports that the following steps are being taken in this regard:

Table 22: Revenue at Current Tariff

Category Sale (MU) Average Rate (Paise) Total Revenue (Rs. Crore)
Domestic      
(a) unmetered 1219 107 130.43
(b) metered 6827 188 1283.48
Total 8046    
Commercial      
(a) unmetered 25 205 5.13
(b) metered 2002 439 878.88
Total 2027    
Lighting 496 119 59.02
Industry      
(a)Small & Medium 1504 436 655.74
(b) Arc/Induction 1007 418 420.93
(c) Large & Heavy 2594 490 1271.06
Total 5105    
Railways 938 436 408.97
PTW 3203 51 163.35
STW 1008 113 113.90
Pump Canal 379 392 148.57
WB Tubewell 542 178 96.48
Total Tubewells 5132    
Waterworks 601 279 167.68
Other States 534 19 10.15
Bulk consumers 2380   469.48
TOTAL 25259  

6283.24

Table 23: POWER SALE/REVENUE

PROPOSED BY UPPCL DETERMINED BY THE COMMISSION
24729 MU 6257 Crore 25259 MU 6283 Crore

5.59 As a result of these efforts UPPCL proposes to increase the collection efficiency to 86.23%. At current tariff, the Commission has estimated revenue at Rs. 6283 Crore in the year 2000-2001. If a modest Rs. 100 Crore is recovered from the large arrears, the total Revenue collection of UPPCL would be Rs. 6383 Crore. This collection target at current tariff is only 2% more than the target set by UPPCL for collection in 1999-2000. It may be stressed that the collection efficiency of UPPCL was particularly low in 1999-2000. We find that, the collection efficiency of UPPCL is much lower than Andhra Pradesh, Rajasthan, Haryana and even Orissa. Therefore, there is no justification for any slippage in revenue collection. Having accepted the licensee's proposal to reduce T&D loss and improve collection efficiency by 5% each in 2000-2001 at prevailing tariff, the Commission projects an efficiency gain of about Rs.600 Crore. Since these targets have been set by the licensee, we hope that they would be reached and the efficiency gain reflected in their performance.

5.60 Government Support to UPPCL: In the revised ARR and Tariff filing UPPCL has assumed that the State Government would provide subsidy of Rs.800 Crore to the Corporation in 2000-2001. This was confirmed by a letter dated 2.5.2000 received by the Commission from Special Secretary, Department of Energy, and Government of Uttar Pradesh. However, vide letter No.E-10-2299/Ten-2000 dated July 3, 2000 the Principal Secretary, Finance has informed the Commission that Rs. 800 Crore would be provided by the State government in the form of equity and subsidy. Of this, the subsidy to be applied to use of electricity in agriculture is Rs. 240 Crore only. In addition, Rs. 400 Crore is proposed to be given to UPPCL as equity for carrying out their normal commercial functions. The State Government would also permit UPPCL to retain the electricity duty estimated at Rs. 150 Crore to be collected by the licensee, which would also be treated as equity to the Corporation. For the present, the State Government does not expect any return on the equity.

5.61 The Commission has considered the communications sent by the Departments of Energy and Finance, Government of Uttar Pradesh that the total funds proposed to be given to UPPCL are Rs. 790 Crore and not Rs.800 Crore. It is difficult for us to treat equity in the same category as subsidy because even if no return is expected from the equity at present, return is nevertheless payable. Also, the receipt of equity is on capital account while subsidy is to be used for expenditure on revenue account. Equity can be used as the share of the Corporation for drawing loans for its investment programme or for meeting its working capital needs. To use it for subsidizing consumption would be inappropriate, against the licensee's long-term interest, not a good accounting practice, and above all contrary to the intentions expressed by the State Government. On account of large unfunded losses, erstwhile UPSEB was transferring capital receipts to meet the revenue expenditure. Over time the capital expenditure declined and the Corporation faced severe financial problems. The Commission would not advise UPPCL to follow this expedient practice, which is a sure recipe for financial ruin. If they do this the whole purpose of reforms in this sector would be negated. Therefore, the Commission has taken only Rs.240 Crore as the subsidy provision to UPPCL.

5.62 The Commission notes the intention of the State Government to finance the losses by increasing the equity of UPPCL. In this way equity will not be utilized for creating 'useful assets' which are eligible for return under Schedule Six of the Electricity Supply Act 1948. Thus the capital base will not increase despite larger contribution to share capital. And no return on equity so used for financing losses will be eligible for return in 2000-2001 or in future years till the losses are recouped by higher profits. And since Rs.550 Crore will finance the projected losses, additional contribution to share capital will be required for meeting UPPCL's share of capital expenditure funded by loans from Financial Institutions.

5.63 We have drawn attention to the inability of UPPCL to collect a substantial part of the bills raised. Important contributors to the shortfall in collection are the departments of the State Government. The Commission was informed that many offices including Police Stations have taken illegal connections by directly tapping the electric lines. This is a serious matter. If Government organisations indulge in the theft of electricity then it would be difficult to control others. The Commission hopes that the state government would issue strict instructions regarding this so that this practice is stopped. The Commission was also informed that at some places the District Officers had threatened action against the employees of UPPCL for taking action against defaulters, which included State Government officials. While such cases are few, it would be desirable to take preventive action at this stage itself. We hope the State Government will issue necessary advice to all concerned regarding this.

5.64 UPPCL has suggested that in government colonies the Estate Department of the State Government should obtain a no dues certificate from the UPPCL at the time of vacation of the government allowed accommodation. This is a reasonable suggestion as it in a large number of cases officials vacate houses in government colonies with large arrears, whose recovery becomes very difficult.

5.65 Some departments have complained about the inadequate provision in the state budget for payment of electricity dues. When attention of the State Government was drawn to this, the Commission was informed that if the Finance Department was approached in such cases adequate funds will be provided. We hope that during the year the departments of the State Government and State aided institutions will pay the user charges in full and there would be no arrears on their account. Meanwhile, the State Government may advance an interest free loan of Rs. 100 Crore to UPPCL so that they tide over the liquidity problems due to delayed payment of user charges by the State Governments Organisations.

5.66 Regulatory assets: UPPCL has requested the Commission to provide for interest cost of the funds required for covering the loss incurred in the operation of UPSEB/UPPCL in 1999-2000. UPPCL is estimated to have incurred a loss of about 1475 Crore in the financial year 1999-2000. Following the break up of UPSEB into three separate entities, separate accounts of UPPCL are to be prepared. However, so far the accounts for 1999-2000 for neither UPSEB nor UPPCL have been finalized. Therefore, the figure of Rs. 1475 Crore has no firm basis. The shortfall of revenue over actual requirement was in the operations of UPSEB, which was divided into three separate Corporations. The responsibility for loss up to January 14, 2000 cannot be only of UPPCL. As reliable information has not been made available, the Commission is unable to take a view on the extent of loss. The provisional Transfer Scheme was prepared on the basis of the audited accounts of 1998-99. After the 1999-2000 audited accounts are made available the three Corporations and the State Government should finalize the revised Transfer Scheme, and make provision for the loss incurred during that year. Therefore, the Commission is unable to accept the contention of the licensee to provide for loss incurred in 1999-2000 and treat the interest cost for funding the unspecified loss as liability eligible for pass through.

5.67 Security Deposit: The licensee has stated that according to the audited balance sheet of UPSEB the security deposit from consumers as on 1.4.1999 amounted to Rs. 505 Crore. In the Tariff Filing, this amount has been increased at the rate of 6% per annum in subsequent years. After deducting the amount transferred to KESCO (Rs.30 Crore), the consumer deposits for 2000-2001 have been taken as Rs. 537 Crore. However, in the Transfer Scheme, the consumer deposits are shown as Rs. 586.54 Crore on 1.4.1999. The licensee has been unable to give any explanation for this discrepancy. Therefore, we have taken Rs. 537 Crore as security deposits from consumers. The licensee has also proposed consumers contribution of Rs. 431 Crore in 2000-2001. This revenue is on account of advances paid by consumers for deposit works etc. The Commission accepts the estimate.

5.68 Contingency Reserves: The licensee can appropriate 0.25 to 0.50 percent of the cost of fixed assets as contingency reserves. This is subject to a maximum of 5% of the original cost of fixed assets. The condition is that the contingency reserves shall be invested in approved securities under the Indian Trust Act 1882. The licensee has not sought any provision under this and the Commission is not providing for any contingency reserves.

5.69 Contribution to employees fund: The contribution by UPPCL towards payment of gratuity, leave encashment, provident fund and pension benefits to the retiring employees has been taken as Rs. 203.8 Crore in 1999-2000. This amount has been projected from the estimated payments made under this head in earlier years and not on any actuary assessment. The actuary assessment is under progress and the correct picture would emerge only after the Transfer Scheme is finalized. In the absence of any other information, the Commission accepts the estimates given by the licensee for contribution to Employees Fund.

Table 24: AGGREAGATE REVENUE REQUIREMENT FOR THE YEAR 2000-01

SN ITEMS AS PROPOSED AS APPROVED
1 Reasonable Return 0 0
2 Total Expenditure including Special Appropriation 8687 7541
3 Less Non Tariff Income 69 69
4 Less outstanding Rebate 0 0
  Total Aggregate Revenue Requirement 8618 7472

5.70 Thus, in light of the above analysis the gap between the aggregate revenue requirement and expected revenue from current tariff is determined at Rs. 1189 Crore (i.e. 7472 less 6283).



CHAPTER 6: Directions and Other Issues

6.1 Payment of user charges by Panchayats: The Commission has received many representations from Panchayats stating that UPPCL should pay them rent for utilizing land for poles and electric lines. Secretary, Nagar Vikas made the same point during the Tariff Hearing. In this context UPPCL has invited the attention of the Commission to Principal Secretary, Energy's letter No. 103P-3/96-24-83P/84 dated 26 June 1996, wherein he had informed all Municipal Corporations, Municipal Boards and other local bodies that this matter had been examined by the Government and they had decided that no rent was payable by the UPSEB to the local bodies for laying down electricity poles, lines or transformers. In view of the categorical advise of the State Government there is no justification for Nagar Panchayats to withhold the user charges for electricity.

6.2 Jal Sansthans have not been regular in the payment of electricity bills. Secretary Nagar Vikas appeared before the Commission and stated that the Jal Sansthans are required to spend substantial resources for providing water supply through piped water schemes and public hand pumps, largely used by the poor. They are unable to recover expenditure incurred on these schemes and this has eroded their ability to pay. Therefore concessional Tariff should be charged from them.

6.3 The Commission is unable to accept this curious argument. It implies that since Jal Sansthans are not raising sufficient resources to meet their current cost they should be subsidized by UPPCL. The solution lies in Jal Sansthans raising more resources or approaching the State Government for funds and not in withholding payment for electricity used by them. The Commission expects that the Jal Sansthans regularly pay for the electricity consumed by them.

6.4 With implementation of the First State Finance Commission recommendations, the State Government gives substantial grant to the Nagar and Gram Panchayats. The State Government should withhold a part of this grant for payment of electricity charges to UPPCL, KESCO and NPCL by Nagar/Gram Panchayats so that the bills of Public Lighting and Jal Sansthans are paid. This is in line with Government of India's practice of withholding a part of Plan grant receivable by States for non-payment of electricity and coal dues. The State Government had followed a similar practice in 1998-1999 and 1999-2000 by directly paying UPSEB from the grant payable to Panchayats. We hope that the State Government will follow this practice in the current year also and take action urgently so that the flow of funds to the licensees is not jeopardized. If the licensees do not receive legitimate user charges in time, they should not hesitate to take action for recovering their dues according to the regulations.

6.5 Interest on Security: Several stakeholders represented before the Commission that the Licensee must pay interest to consumers on security deposits at the fixed deposit rate. Others have opposed increases in these deposits from time to time. The attention of the Commission has been drawn to the order of the Hon'ble Supreme Court in Civil Appeals Nos. 2117 to 2122 of 1993. The Court has held that the electricity provider has to make vast advances to arrange for the supply of electricity to the consumer, who consumes electricity on credit of varying periodicity, depending on the consumer category. Hence, this security is justified, and is in the nature of an advance consumption deposit aimed at continually offsetting amounts owed by the consumer to ensure payment from him. On the question of paying interest on this security deposit, the Hon'ble Court has held that since this deposit is not in the nature of a deposit or fixed deposit, and there is no provision of this nature in the Sixth Schedule of the Electricity Supply Act 1948, the obligation to pay interest does not arise. The Court has further held that provisions of the Interest Act do not apply due to the nature of this deposit, which is essentially a running current account, and the nature of the relationship between the supplier and the consumer, which is not one of debtor and creditor. Further, it has been held that in any case the Interest Act does not override other laws or contracts between parties. On the issue of enhancement of security deposit, the Court has held that given the intention behind this deposit, it is logical that the amount would be increased as Electricity Tariffs increase. In light of these findings, the Commission does not find any merit in the representations made by stakeholders in this regard

6.6 Capital Expenditure: Capital expenditure is often incurred without regard to the viability of projects. The licensee has not been able to provide the details of even works in progress. They have not confirmed whether considerations of financial return play any role whatsoever, before investment proposals are approved. The Commission directs UPPCL to give details of the capital expenditure in the last five years along with the rate of return expected from such expenditure. For the current year a detailed financial viability analysis of capital projects should be undertaken before submitting them for the Commission's approval. No funds should be expended in the Capital Account in contravention of this requirement. The Commission does not wish to be too intrusive but this step, which the Commission is empowered to take under the Reform Act, is being stressed as the Licensee agreed that a lot of misinvestment has taken place and that it is difficult to stop this practice effectively.

6.7 Load Assessment: There are complaints that many domestic consumers use load in excess of the sanctioned load. This causes over loading of lines, thereby affecting the quality of electricity supply to other consumers. It also results in high T&D losses. The licensee also suffers revenue loss where a two-part tariff comprising a fixed charge or minimum charge based on connected load is applicable. During the Tariff Hearings, a large number of domestic consumers complained of the highhandedness and misbehaviour by UPPCL staff inspecting the premises of consumers for checking the connected load. They also pointed out that Section 20 of the Indian Electricity Act 1910 lays down the circumstances, purposes and limits applicable to authorised officials of the supplier while entering the premises of consumers. The preconditions for inspection are not being observed and consumers are put to a lot of harassment. The issue raised by the consumers is an important one. We shall take this up in detail while considering the Distribution Licence petitions of UPPCL and KESCO. Regarding the relationship between the power points in a dwelling and the sanctioned load, we have taken note of the complaints by the consumers, and feel that if officials work with the same zeal in checking theft, as they do in such inspections they would be utilizing their administrative capacity more effectively. Till the distribution licence and the supply conditions are finalised, officials of the licensees should concentrate on initiating and implementing technological rather than administrative solutions and desist from generalised inspections except in exceptional circumstances. At that time they should not transgress the provisions of the Indian Electricity Act and Rules.

6.8 The Commission proposes that a pilot scheme in an urban area with high consumer density should be taken up and miniature circuit breakers (MCBs) of an appropriate rating for each consumer should be installed between the distribution mains and the service connection. Record should be maintained, providing details of tripping and reactivation of MCBs, load on distribution transformers, voltage at consumer's premises before and after the installation of MCBs etc. A report on the results achieved should be submitted to the Commission within 4 months for review. If found effective, the licensee should expand the coverage of this scheme.

6.9 Training and Research: An important lacuna in the working of UPSEB and its successor entities has been the lack of attention to training and research. UPPCL has two training institutions but little attention is being paid to their growth and development. This is evident from the fact that in 2000-2001 the licensee has sought no funds for Training. The training institutions conduct a few programme but these are too few to have any impact on the working of the licensee. The licensee should prepare a training programme for upgrading the technical skills of the staff. Also a strategy for promoting and adopting new technology should be worked out. In this, the cooperation and participation of the State Government and academic institutions in the State, like IIT and IIM, should be invited. Assistance for training from national and international financial institutions like the Power Finance Corporation and the World Bank should be explored.

6.10 The Commission would like the licensee to finalize a well defined policy for upgrading training/skills and provide for it in the next year's Annual Revenue Requirement and Tariff Filing.

6.11 Need to improve database and quality of filing: The Commission has been greatly hampered in getting a true picture of the working of UPPCL because of lack of adequate data. Despite numerous requests the data asked for by the Commission have not been made available to it. This is the first time tariff filing has been done by UPPCL and, therefore, the Commission has proceeded on the basis of the available data. The Commission, however, expects that in future filings all information as per the formats sent to the licensees is made available to help review their functioning and inter-alia rationalize the tariff structure.

6.12 The Commission advices UPPCL to review its information system and reorganize its data processing systems so that details available on the ground on the number and type of consumers, connected load, revenue inflow through metered and unmetered consumption, and through other charges like MCG/demand charges can be quickly retrieved and made available for analysis and requisite changes.

6.13 Apart from better data gathering capability, UPPCL should ensure that information is collected and analysed in time. Both on the expenditure and the revenue side, UPPCL should endeavour to provide information on important indicators for the preceding month by the 15th of the succeeding month. This would be useful not only for UPPCL but also to the State Government and the Commission to understand how costs and revenues are moving through the year in relation to the targets set.

6.14 Information on the working of UPPCL and the generating companies should also be made available to the public. This would help in making the process of tariff fixation more transparent. Apart from improving transparency, which is a goal in itself, it is necessary to provide adequate and reliable information to the public to enable active participation by them.

6.15 The Commission has noted that the bills of Domestic, Commercial and Industrial consumers are processed by external agencies. Uniform formats are used for processing the bills but the software has not been standardized. Therefore, there is inflexibility in data transfer. The output reports generated, which are about fifty in number, including control reports, are hard copies that are difficult to collate. Billing of large industries is still done manually. No copy of billing database is maintained at the divisions or even centrally. Even the Billing Agents maintain the database for a maximum of two billing cycles. The Commission stresses the urgent need to standardize data, software and the system of collation of the billing information gathered.

6.16 The Commission has directed the Licensees to reduce T&D losses, both Commercial and Technical, including the large-scale theft of electricity, in a time bound manner. Improvement in collection of billed amounts has also been stressed. As has been indicated elsewhere, failure to achieve the time bound targets would hurt the bottom line of the Licensees, since the Commission would be guided by these widely accepted, and by no means unreasonable, norms in allowing recovery of costs in future years. The Commission has also provided for sharing of the revenue gains from achievements beyond the target, between the Licensee and the Consumers. In this regard, the Licensees are directed to fix targeted and time bound responsibility for the various field officers down the line to reduce T&D losses and improve collection of billed amounts. Achievements against these targets should be the basis of a competition within and across various Zones and Divisions of the Company, with suitable incentives for good performance.

6.17 The licensees should submit a complete Action Plan to implement all the directions of the Commission contained in this order, within one month of its issue.



CHAPTER 7 : The UPPCL Tariff Petition: The Tariff Schedule

7.0 In formulating the tariff schedules, we have taken into account the immediate need to improve the operational efficiency of the licensee, reduce T&D losses, provide metered electricity, reduce distortions in tariff, so as to lower cross subsidy, and ensure that the licensee is financially viable. We have attempted to make tariff reflective of the underlying costs and have generally adhered to the principles laid down in the VIth schedule. We have moved towards performance based regulation by setting targets for installing meters, measuring consumption in agriculture reducing T&D losses as well as providing an incentive structure in case the efficiency gains are beyond the targets set. We have allowed Power Purchase Cost on the principle of merit order and have accepted lower expenditure on wages and salaries. We have taken special care to see that the legitimate working capital requirements of the licensees are met. In this head we have provided more funds than the licensee is eligible for under the provisions of the Sixth Schedule of the E.S. Act 1948. We hope that the measures proposed will induce the licensee to improve its performance in the coming years.

7.1 In revising the Tariff Schedules, we have faced many problems. The most important of this has been the absence of information regarding the important performance indicators. Vast amount of information flows from the field to headquarters but most of it is not analysed. As not much attention has been paid to the field reports over the years, the quality of information sent by field offices has deteriorated. We get the impression that there is little co-ordination among different offices of the UPPCL. We have received different data on the same subject from different offices. This has happened even in areas like the amount of energy purchased or payments made to central generating stations, where scope for error should be minimum.

7.2 The details of capital assets of UPPCL are not available and the information provided on the capital works in progress is fragmentary. The data regarding consumption of electricity by various categories of consumers is also not very reliable. This is not only so in the un-metered category of rural consumers and agriculture, but also in metered categories. Within a consumer category, information on the use pattern of different income/expenditure groups as well as in different regions, has not been made available. Similarly, data regarding connected load and pattern of consumption could not be given to the Commission even in case of dedicated feeders.

7.3 UPSEB filed the ARR and Tariff Petition on December 31, 1999 before it was trifurcated on January 14, 2000. There appears to have been very little preparation before the ARR filing was done. In the past, tariff fixation was mostly a matter of negotiations between the UPSEB and the State Government and this process did not require the range and the quality of information sought by the Commission. The transparency required now, too was unthinkable earlier.

7.4 The tariff revision, details of which follow, will result in an annual increase of Rs.640 Crore in revenue to UPPCL. This would raise the current average tariff by 10.18 per cent. As the revised tariff will be available for eight of the twelve months in 2000-2001, the UPPCL's revenue will increase by Rs. 427 Crore.

7.5 During 2000-2001 the gap between the approved expenditure and the expected revenue is projected at Rs 399 Crore after accounting for the financing of Rs. 790 Crore by the State Government. Thus the revised tariff will fully cover the revenue gap and will leave Rs 28 Crore as surplus for the Corporation. We propose to allow this amount as return on the capital base.

7.6 It would be ideal to use the cost of supply applicable for each voltage to estimate cross subsidy. The Indian Electricity Rules 1956 prescribe maintenance of accounts by SEBs in a format separating the capital expenditure and operating expenditure for EHT, HT and LT voltages. But accounts in the prescribed formats have not been kept. Preliminary information available with the Commission reveals that the cost of LT supply per unit may be as high as three times the cost incurred at HT/EHT voltages. The Commission has been informed that a study of marginal cost of electricity supplied to different categories of consumers would be made available at the time of next year's Tariff Filing. Similarly, a detailed study of cost of supply at different voltages will also be made available at that time. As the tariff structure in the state is extremely distorted, in this order we have tried to so adjust the tariff that consumers paying much less than the average cost of electricity should move towards paying a higher share of the average cost. In this regard, the Commission has been conscious of the need to avoid disruptive and excessive tariff shocks to these consumer categories, and hopes to achieve the optimal state at an appropriate and prudent pace. The following table gives the average cost of supply and the average revenue per unit at current tariff for different categories of consumers:

Table 25: Average Cost of Supply

Consumer Category Average Cost of Supply per unit Average Revenue per unit % Increase Required to Equal Average Cost
Domestic      
Metered 2.99 1.88 59%
Unmetered 2.99 1.07 179%
Commercial      
Metered 2.99 4.39  
Unmetered 2.99 2.05 46%
Agriculture      
PTW 2.99 0.51 486%
STW 2.99 1.13 165%
WB 2.99 1.78 68%
Public Water 2.99 2.79 7%
Public Light 2.99 1.19 151%
Industrial      
Small medium 2.99 4.36  
Arc/ind 2.99 4.18  
Heavy 2.99 4.9  
Railways 2.99 4.36  
Pump Canal 2.99 3.92  

The table shows that in the domestic metered category, an increase of 59% and in the domestic un-metered category an increase of 179% would be required to reach the average cost of supply. For private tube wells the tariff would have to be raised by nearly 5 times, for state tube wells by 1.65 times and for public lighting by nearly 1.5 times, to reach the average cost of supply. At present consumers belonging to industries, railways and the commercial categories are subsidizing these sectors. To rectify the skewed tariff structure we have made changes that take tariffs of all categories nearer to the average cost of supply. The main features of the changes proposed by us are:

7.7 Minimum Guarantee Charge: A large number of objections have been received against the practice of levying a Minimum Guarantee Charge (MCG). The main rationale for levying such a charge is to recover part of the fixed costs incurred by the utility to serve the consumer. These costs have to be incurred whether or not the consumer actually draws energy. Several consumers have complained that while they have been billed on the basis of MCG, the supply of electricity has been so low that had they been billed only for the electricity actually consumed the amount payable would be less than the MCG charge. It has been argued that the minimum guarantee charge should be abolished and consumers should be charged only on the basis of the actual metered consumption. UPPCL, on the other hand has argued that once a consumer has been sanctioned a particular load, it is to be expected that he would consume a certain amount of power based on his sanctioned load. This method is also useful in checking theft by those consumers who bypass their meters. It has, therefore, been argued that the MCG system should continue, as otherwise UPPCL would be put to great loss.

7.8 The Commission after considering both the points of view is of the opinion that there is clearly a need to rationalize the system of recovering fixed costs. The argument that MCG protects the revenue of UPPCL against dishonest consumers, who bypass the metering system, is not a reasonable or sufficient one to continue MCG in the existing manner. For the sake of dishonest consumers, the rest cannot be made to shoulder an unnecessary burden. Further, when there is no reciprocal arrangement for penalizing UPPCL for its inefficiency in not supplying electricity, it is unfair to penalize only the customers.

7.9 A more rational approach would be to levy a fixed charge on the consumer in proportion to his sanctioned load. Part of UPPCL's fixed cost can be recovered through this mechanism. The balance of UPPCL's cost should be linked to the actual energy supplied to consumers. Such a system would provide an incentive to UPPCL to improve supply to its consumers.

7.10 The price of any product has to be linked to the quality of supply. At present this is not the case with electricity. Irrespective of the frequency of disruption or the voltage at which it is supplied, the charges to be paid by the consumer are the same. It is necessary to increasingly link payment with actual supply and also the quality of such supply. In our view the first step in this direction is to have consumers pay a greater proportion of their monthly bills, towards payment of actual energy supplied to them. However, due to lack of detailed information on the various categories and sub categories of the consumers, it would be difficult at present to move completely in this direction. Therefore the Commission after careful consideration has decided to do away with MCG only in the case of domestic consumers in 2000-2001.

7.11 Establishment and Power Purchase Surcharge: UPPCL has proposed an establishment surcharge as part of the revised Tariff schedule. Section 24(8) of the U.P. Reforms Act states that Tariff shall not be determined more that once in a financial year, except in respect of any changes, expressly permissible under the terms of a fuel surcharge formula as may be provided by Regulations. There is no provision for any establishment surcharge under the Act. Accordingly, the proposal for levying establishment surcharge in not accepted. A power purchase surcharge has also been proposed. The formula proposed by the licensee is not consistent with the Act and with the Regulation 131 issued by the Commission. In the estimates prepared by the Commission for the current year, a certain escalation in the cost of fuel has been provided for. Since the revised tariff will be in force only for 8 months, there does not appear to be any need for any fuel surcharge adjustment during the current regulatory review. UPPCL should come up with an appropriate fuel adjustment formula in its tariff filing for the next year, which is consistent with the Act and the Regulations. If any fuel purchase charge becomes during the current financial year due to central generating stations, it should be taken into account while preparing the ARR for 2001-2002.

7.12 Area Specific Tariff: Presently electricity tariff in the Hill Districts, Ten Eastern Districts and the Bundelkhand region is lower for certain categories of consumers. The rebate varies from 33.3% to 50% of the bill. Section 24(7)(a) of UP Electricity Reforms Act requires the Commission to set tariffs in such a manner that the tariff shall not show any preference or favour to any consumer of electricity but may be differentiated on grounds of consumer's load factor, power factor, purpose of use, total consumption of electricity by the consumer, or the time during which the supply is required. As tariff cannot be differentiated due to factors other than those provided for, it is not possible to have different tariffs based on the location where electricity is consumed. The Commission had asked the State Government to indicate if they would provide subsidy for consumption in areas in which subsidy is admissible under the current tariff regime. They have not allocated any subsidy for this purpose. Therefore, the Commission is unable to determine differential rates for Bundelkhand, Ten Eastern District and the Hill Districts. UPPCL shall continue to honour the legal agreements entered into before the implementation of the revised tariff.

7.13 The changes in the tariff schedule are as follows. This amended schedule shall apply to UPPCL, KESCO and NPCL.

LMV-1 : DOMESTIC LIGHT AND FAN

This schedule shall apply to:

  1. Residential premises for light, fan, power and other domestic purposes including residential colonies/townships, residential multi-storied buildings, where energy is exclusively used for such purposes.

  2. Janata Service Connections and Kutir Jyoti Connections.

Provided that in case some portion of the above-mentioned premises are used for conduct of business, then the entire energy consumed shall be charged under the appropriate rate schedule unless such load is segregated and separately metered.

UPPCL has proposed no change in tariff structure in this category. They have proposed an increase of 57% in tariff in the un-metered category and 34% in metered supply to domestic consumers. The Commission has announced its intention to introduce two-part tariff for all categories of consumers. This concept is being implemented in the domestic light and fan schedule for the first time. Fixed charge should normally be related to the demand. However, for the present, due to inadequacy of reliable information a fixed charge per connection is being introduced. There will be no change in the single part tariff charged per connection in villages/towns with population below ten thousand. Two-part tariff consists of a fixed charge per connection and an energy charge. To simplify the schedule, the number of slabs for domestic metered supply has been reduced from 4 to 3.

Charges for villages/towns having population less than 10,000 as per 1991 census and loads up to 2 KW, getting un-metered supply as per rural schedule:
Fixed charges (Rs. per connection per month)

UPPCL UPERC
Existing Rate As Proposed As approved
52 80 62

b.1 Charges for registered societies for their residential colonies having not less than 20 houses in the colony and other residential colonies /multi-storeyed residential complexes taking load in bulk at single point

Energy Charges (Paise per unit) and Fixed Charges (Rs. per connection per month)

UPPCL UPERC
Existing Rate As Proposed As approved
Energy Energy Energy Fixed
220 310 250 Rs. 25 for load up-to 1 KW
   Rs 50 for load above 1 KW    Rs 150 for 3 phase load

Fixed charges shall be calculated on the basis of numbers of consumers residing in the colony /multi-storied building.

b.2 Charges for others, including consumers getting supply through rural feeders exempted from scheduled rostering or through co-generating radial feeders in villages/towns having population up to 10,000 as per 1991 census:
Energy charges (Paise per unit) and Fixed Charges (Rs. per connection per month)

UPPCL

UPERC
Slabs (units) Existing Rate As Proposed Slabs (units) As Approved
0-100 180 250   Energy Fixed
101-300 210 295 0-100 180 Rs. 25 for load up-to 1 KW
Rs 50 for load above 1 KW
Rs 150 for 3 phase load
301-500 235 330 101-300 225
ABOVE 501 260 365 301-ABOVE 280

In case of defective meter, the energy consumption shall be assessed and billed using a load factor of 20% on the connected load. For this purpose, the connected load of less than 0.5 KW shall be treated as 0.5 KW. But this shall be limited to three months period, and within this period the meter should be set right.

The provision for rebate for timely payment and supply at higher voltages shall be applicable as proposed.

LMV-2 : COMMERCIAL LIGHT, FAN AND POWER

This schedule shall apply to all consumers using electric energy for light, fan and power loads for commercial purposes like all type of shops, Non-Government Hospitals, nursing homes, dispensaries, hotels, restaurants, guest houses, marriage houses, show-rooms, commercial establishments, Railways (excluding traction and industrial premises), Cinema and Theatres, X-ray plants, commercial institutions/societies, research institutes, coaching institutes, all schools/colleges not receiving Govt. aid, museums, power looms up to 4 KW load and not covered under any other rate schedule.

A fixed charge per connection has been introduced in this schedule and is as follows:
a. For villages/towns having population less than 10,000 as per the 1991 census and loads up to 2 KW getting un-metered supply as per rural schedule:

Fixed charges (Rs. Per connection per month)

UPPCL UPERC
Existing Rate As Proposed As approved
80 120 95

b. In other cases, including consumers getting supply through rural feeders exempted from scheduled rostering/restrictions or through co-generating radial feeders in villages/towns having population up to 10,000 as per 1991 census.

Energy charges (Paise per unit) and Fixed Charges (Rs. per connection per month)

UPPCL

UPERC
Slabs (units) Existing Rate As Proposed Slabs (units) As Approved
Energy Energy Energy   Energy Fixed
No slabs 425 530 0-100 425 Rs.35 for load up-to 1 KW
Rs 75 for load above 1 KW
Rs 225 for 3 phase load
101-above 450

c. Power looms with connected load up to 4KW will get a rebate of 10% in energy charges.

Minimum Charges

For consumers billed under rate of charge (b) above:

For consumers having load up to 5 KW Rs. 190/- per KW or part thereof per month.
For consumers having load up to 10 KW Rs. 220/- per KW or part thereof per month
For consumers having load above 10 KW Rs. 250/- per KW or part thereof per month
For consumers having load more than 10 KW on whose premises MDI has been installed on their request on recorded/ assessed demand. Rs. 5280/- per KW or part thereof per year chargeable @ Rs. 440/- per KW or part thereof per month provided that -
The minimum charge for the month, as mentioned above, shall be charged on the actual maximum demand or 75% of the contracted load, whichever is higher, subject to final adjustment in the last bill of the year of account.
f the maximum demand of the consumer in any month exceeds the contracted load such excess demand shall be charged at an additional rate of Rs. 190/- per KW or part thereof per month over the normal rate. This additional charge as well as minimum charge at the normal rate on excess load over and above the contracted load shall not be taken into account towards aforesaid amount of minimum charge.
Existing consumers can avail an opportunity but only once to reduce their contracted load.

In case of defective meter, energy consumption shall be assessed and billed using the load factor of 30% on the contract demand. For this purpose the connected load of less than 0.5 KW shall be treated as 0.5 KW. But this shall be limited to three months period, and within this period the meter should be set right.
The provision for rebate for timely payment and supply at higher voltages shall be applicable as proposed.

LMV-3 PUBLIC LAMPS


This schedule shall apply to public lamps including street lighting system, traffic control signals, lighting of public parks etc. The street lighting in Harijan Bastis and villages are also covered by this rate schedule.

At present the rates for public lamps are the same for small as well as large towns. We have categorised towns into 3 categories:
(i) Those with population up to 10000 as per 1991 Census.
(ii) Those with population above 10000 but less than 1 lakh
(iii) Those with population above 1 lakh: -

There will no increase in the existing rates for small towns. Larger towns are expected to pay higher energy charge. Electricity supply for public lighting is not metered at present and is not based on the wattage of bulbs. It should be metered. The Commission expects the licensee to take up metering for street lighting in a phased manner. The Commission hopes that meters would be put in place to measure electricity consumption in two towns with population of above 10 lakh before the next tariff filing.

Energy Charges (Paise per unit)
UPPCL UPERC
Existing Rate As Proposed As Approved
250 430 290

 

Fixed charges (Rs. Per point per month)
UPPCL UPERC
Lamp Rating Existing Rate As Proposed As Approved
For towns having population upto 10000 For towns having population above 10000 and up to 100000 For rest
Up to 100 watts 55 95 55 60 65
Above 100 and up to 250 watts 140 240 140 155 170
Above 250 and up to 500 watts 280 480 280 300 325

The provisions for maintenance charges, lamps, and verification shall be applicable as proposed by the UPPCL.

LMV-4 Public Institutions

We have created a new category to cover Government and semi Government offices, Government hospitals, Government Research Institutions, temples, mosques, gurudwaras, Government and Government aided educational institutions and their student hostels/libraries, electric crematoriums and charitable institutions and trusts. This category will also include offices, buildings, inspection houses of UPPCL/UPRUVN/UPJVN and construction power to their thermal and hydro projects.

Consumers in this category have a consumption pattern which is quite different from domestic consumers. Therefore there is ample reason to classify them separately and have a separate tariff schedule for them.

UPERC
Slabs (units) As Approved
  Energy Fixed
0-100 190 Rs. 30 for load up-to 1 KW
101-300 250 Rs 60 for load above 1 KW
301-ABOVE 290 Rs 160 for 3 phase load


The provision for rebate for timely payment and supply at higher voltages shall be applicable as proposed.

LMV-5 SMALL POWER FOR PRIVATE TUBE WELLS/PUMPING SETS FOR IRRIGATION PURPOSES

This schedule shall apply to all power consumers getting supply as per rural/urban schedule for private tube-wells/pumping sets for irrigation purposes, having a contracted load up to 25 BHP and for additional agricultural processes confined to chaff-cutter, thrasher, cane crusher and rice huller.

Private tube wells and pump sets in rural areas are charged at Rs.40 per BHP per month irrespective of the rating of the pump. We have already pointed out that to recover the average cost of supply tariff for private pump sets will need to be increased by 4.86 times. We recognise that it would not be desirable to give such a huge tariff shock to this sector. It may, however, be recalled that from this category of consumers, tariff at the rate of Rs.50.00 per BHP was being charged till 1996, when it was reduced to Rs. 40.00 per BHP. This tariff is being revised after four years. The sector needs to contribute more towards meeting the average cost of supply. The rate of increase for pump sets up to 10 HP will be by Rs. 15 per BHP per month; and pump sets above 10 HP by Rs. 20.00 per BHP per month. In order to encourage pump set owners to demand the installation of meters, metered supply would be charged at the rate of Rs. 1.00 per KWH. The minimum charge in case of metered supply will be calculated at Rs.50.00 per BHP per month.
The schedule is as follows:

a. For consumers getting supply as per rural schedule:
i. Un-metered supply

Fixed Charges (Rs. Per BHP per month)
UPPCL UPERC
Existing Rate As Proposed As Approved
40 55 a. For motive power up to 10 HP 55
b. For motive power above 10 HP 60

In addition, there will be a charge of Rs. 20 per connection per month for two lamps up to 60 watts.

ii. Metered Supply:

Energy Charges (Paise per unit)
UPPCL UPERC
Existing Rate As Proposed As Approved
50 70 70
with minimum charges of Rs.55 per BHP/month with minimum charges of Rs.75 per BHP/month with minimum charges of Rs.50.0 per BHP/month


b. For consumers getting supply as per urban schedule (metered supply)

Energy Charges (Paise per unit)
UPPCL UPERC
Existing Rate As Proposed As Approved
210 290 290
with minimum charges of Rs. 90.0 per BHP per month. with minimum charges of Rs. 90.0 per BHP per month. with minimum charges of Rs. 90.0 per BHP per month.

The provision for surcharge for late payment shall be applicable as proposed.

LMV-6 SMALL AND MEDIUM POWER

This schedule shall apply to all consumers of electrical energy having a contracted load up to 100 HP (75KW) for industrial/processing or agro-industrial purposes, power loom (load above 4 KW) and to other power consumers not covered under any other rate schedule having at least one motor exceeding 3 BHP or any electrical appliance of above 2KW rating at 230/400 volts.

This rate schedule shall also apply to consumers existing on 01.02.86 and/or those consumers who executed agreements/declarations up to 31.01.86, having loads above 100 BHP consequent upon amalgamation of industrial load and light and fan load.

Those consumers who had opted for Rate Schedule HV-2 and arranged the metering equipment themselves, shall continue to be billed under Rate Schedule HV-2. However, such consumers can also afresh opt for billing based on recorded MDI in this tariff, but the option once exercised shall be irrevocable. Similarly, other consumers can also opt for either Rate Schedule HV-2 or billing based on MDI recorded under this Rate Schedule.

UPPCL has proposed that fixed charge for small power load up to 25 BHP be increased from Rs. 28 to Rs. 30 per BHP per month and energy charge from Rs. 3.60 to Rs. 4.20.

We have restricted the increase in energy charges to Rs. 3.90 only. Consumers who wish to get power supply during restricted hours, including peak hours will pay a surcharge of 15% on the amount of rate of charge ie. Fixed/Demand charge and energy charge.

The Commission has also introduced a new category to cater for seasonal industries. During the Tariff Hearing, the Commission was informed that seasonal industries like Sugar mills are not taking power from UPPCL because fixed charge was levied for the entire year while electricity was used for only for a part of the year by seasonal industries. Sugar factories, Ice factories, Dal mills and such other agro industries that operate for a limited period of the year play an important role in the economy of the State. For seasonal industries during the off season the demand charge will be 30% of the contracted demand or the recorded maximum demand which ever is higher. We hope with this concession UPPCL will be able to attract back the seasonal industries that have left them, as their average cost of power will now be lower than before.
The schedule for this category is given below:

a. Up to 25 BHP

Energy Charges (Paise per unit) and Fixed Charges (Rs. per BHP or part thereof per month)
UPPCL UPERC
Existing Rates As Proposed As Approved
Fixed Energy Fixed Energy Fixed Energy
28 360 30 420 30 390

b. Medium Power Loads above 25 BHP and up to 100 BHP

UPERC
As Approved
Sl.No Description Fixed charge per month Energy charge per month
(i) For consumers who opt for installation of MDI demand charges per month Rs. 115/- per KVA of billable demand for the month 410 paise per KWh
(ii) For consumers who do not opt for installation of MDI Rs. 45/- per BHP or part thereof per month 410 paise per KWh


c. For consumers to get power supply during restricted / peak hours

15% additional surcharge on the amount of rate of charge ie. Fixed/Demand charges plus energy charges.

d. For connection in rural area getting supply as per rural schedule

10% rebate on the amount of fixed/demand charge and energy charge.

The billable demand, as mentioned in sub-clause-4 (b) (i) above, for the month shall be the actual maximum demand or 75% of the contracted demand whichever is higher.

Provided that if the maximum demand of the consumer in any month exceeds the contracted load, such excess demand shall be charged at an additional rate of Rs. 185/- per KVA or part thereof per month over the normal rate. This additional charge as well as demand charge at the normal rate on excess load over and above the contracted load, shall not be taken into account towards amount of minimum charge.

* In case where demand is recorded in kilowatts, the demand charge shall be computed assuming a power factor as 0.85.

e. Seasonal Industries

Where a consumer having load in excess of 25 BHP and has opted for installation of MDI at his premises and avails supply of energy for manufacturing sugar, ice, or for such other industries or processes as may be specified by UPPCL in consultation with the Commission from time to time, principally during certain seasons or limited period in the year and his plant is regularly closed down during certain months of the financial year, he may be charged for the months during which the plant is shut down (which period shall be referred to as off season period), as follows:

UPERC
As Approved

Demand charge
(Based on the recorded maximum demand or 30% of the contracted demand which ever is higher)
PLUS
Rs. 115 per KVA per month
Energy Charges
(all consumption in a month)
410 Paise per unit


However during season period these consumers shall be billed at the rates given at b-i read with c and d.
* The period of season shall not be less than 4(four) continuous months.

* The existing consumers who are desirous of availing the seasonal benefits shall intimate their season to the concerned Executive Engineer of UPPCL under registered cover.

* The prospective consumers classified as seasonal consumers, who are desirous of availing the seasonal benefits shall specifically declare their season at the time of submission of declaration/execution of agreement that their loads should be classified as seasonal loads.

* The seasonal period once notified cannot be reduced.

* The off season tariff is not applicable to composite units having seasonal and other categories of loads.

* The off season tariff is also not available to those units who have captive generation exclusively for process during season and who avail UPPCL's supply for miscellaneous loads and other non process loads.

* Any seasonal consumer who after declaring the period of season consumes power for his main plant during the off season period, shall not be entitled to the above benefit during that particular year. This will be without prejudice to any other action the UPPCL may take.

* The seasonal process is to be notified by Chief General Manager (Com), UPPCL with the concurrence of U.P. Electricity Regulatory Commission.

Minimum Charge

For consumers having contracted load upto 25 BHP
a. Getting supply on rural feeders as per rural schedule
Rs.1944 per BHP or part thereof per year of the contracted load chargeable at the rate of Rs.162 per BHP or part thereof per month of the contracted load subject to final adjustment in the last bill of the year of account.

b. Getting supply on urban feeders
Rs.2940 per BHP or part thereof per year of the contracted load chargeable at the rate of Rs. 245 per BHP or part thereof per month of the contracted load subject to final adjustment in the last bill of the year of account.

For consumers having contracted load above 25 BHP
In respect of consumers who have not opted for the installation of MDI at their premises:
a. Getting supply on rural feeders as per rural schedule
Rs.2580 per BHP or part thereof per year of the contracted load chargeable at the rate of Rs.215 per BHP or part thereof per month of the contracted load subject to final adjustment in the last bill of the year of account.

b. Getting supply on urban feeders
Rs.3600 per BHP or part thereof per year of the contracted load chargeable at the rate of Rs.300 per BHP or part thereof per month of the contracted load subject to final adjustment in the last bill of the year of account.

In respect of consumers who have opted for MDI at their premises:
a. Getting supply on rural feeders as per rural schedule
Rs.3360 per BHP or part thereof per year of the contracted load chargeable at the rate of Rs.280 per BHP or part thereof per month of the contracted load subject to final adjustment in the last bill of the year of account.

b. Getting supply on urban feeders
Rs.4260 per BHP or part thereof per year of the contracted load chargeable at the rate of Rs.355 per BHP or part thereof per month of the contracted load subject to final adjustment in the last bill of the year of account.

Note: In respect of Seasonal industries the minimum charge shall be applicable as per above classification. However, the amount of the minimum charge shall be reduced proportionately for the season period. During off season, no minimum charge shall be applicable and only the demand and energy charge shall be payable.
The provision for rebate for timely payment and supply at higher voltages and late payment surcharge shall be applicable as proposed. The provision for installation of shunt capacitors should be applicable as proposed.

LMV-7 Public Water Works

This schedule shall apply to Public Water Works, sewage treatment plants and sewage pumping stations functioning under Jal Sansthan, Jal Nigam or any other organisation for similar purposes.

The current rate of Rs. 2.60 per kwh is raised to Rs.2.80 per unit ie. only by 7 percent. This rate will bring the per unit rate closer to the average cost of supply.

Energy Charges (Paise per unit)
 UPPCL UPERC
Existing Rate As Proposed As Approved
260 320 280

Minimum charges: Rs. 485.0 per KW or part thereof per month.
The provision for rebate for timely payment and late payment surcharge shall be applicable as proposed.

LMV-8 State Tube wells, World Bank Tube wells and Pump Canals

This schedule shall apply to supply of power for State Tubewells, World Bank Tubewells, Indo Dutch Tubewells, and other pump canals and Lift Irrigation schemes having Load up to 100 BHP and Laghu Dal Nahar having a load above 100 BHP.

A consolidated tariff at Rs. 230 per BHP per month is charged from State tube wells, while World Bank financed tube wells pay at the rate of Rs. 440 per BHP per month. The reason for this differential tariff is that UPSEB had given an undertaking that the World Bank financed tube wells will be connected to independent feeders and no other connections will be given on such feeders. Over the years this has been violated and currently there is no difference in power supply to these two categories of state tube wells. Therefore, there is no justification of continuing with this anachronism. All State tube wells will be charged at Rs. 350 per BHP per month.

The Commission has advised UPPCL and the Department of Irrigation, Government of Uttar Pradesh to install meters immediately in at least 10% of state tube wells selected on a representative basis. For metered supply the rate will be a fixed charge of Rs.100.00 per connection per month plus energy charge of Rs. 1.00 per unit .

We would have liked to introduce a similar per unit charge for 'Laghu Dhal Nahar' also. We have advised that meters should be installed in these canals. Till progress is made in this direction the current tariff of Rs. 470 per BHP per month is being raised to Rs. 490 per BHP per month. The current rate is quite high and merits only this small increase of about 4%.

Fixed Charges (Rs. Per BHP per month)
UPPCL UPERC
  Existing Rate (Rs/HP/month) As Proposed
(Rs/HP/month)
As Approved
(Rs/HP/month)
STW 230 310 350
WB Tubewells 440 595
Laghu Dal 470 635 490

In case of metering at world bank/STW: Rs. 100 per connection (tube-well) per month plus energy charges : 100 paise per unit

The provisions for light and fan connections, statement of BHP and KWH, installation of shunt capacitors shall be applicable as proposed. The provision for late payment surcharge shall be applicable as proposed.

Schedule TS/LMV - 9 Temporary Supply

a. Temporary supply for illumination & public address needs:
This schedule shall apply to temporary supply of light & fan, Public address system and illumination loads up to 10 KW only during functions, ceremonies and festivities not exceeding seven days.
Rate of charge (separately for each point of supply)

(i) Fixed non refundable service charge to cover supervision, connection/disconnection, cartage of tools and plants and administrative expenses.Rs. 150.00
(ii) Energy charges on per day basis in two part:
(a) First day (for first 24 hrs. or part thereof between 8 a.m. to 8 a.m. next day)
Rs. 750.00
upto 10 KW load

(b) Subsequent days (for every next 24 hrs or part thereof).

Rs. 270.00 per day
upto 10 KW load
b. For electric connection given to temporary shops coming up during festivals/melas and having load up to 2 KW
Rs.75/- day or part
c. Supply for temporary shops and jhuggi / jhoparis for load upto 1 kw and maximum period of 180 days.
Rs. 75/- per month/connection for Rural Area and Rs. 150/- per month/connection for Urban Area.
d. Temporary supply for other purposes and more than 10 KW load:

This schedule shall also apply to all temporary supplies of light, fan and power load for purpose of other than mentioned in (a) ,(b) and (c). This schedule shall also apply for power taken for construction purposes including civil work by all consumers including Govt. Departments.

The rate of charges will be corresponding net rates of charge in the appropriate schedule plus 25%.

Note: The appropriate rate schedule for the temporary supplies for cane crusher upto 15 BHP given for maximum period of four months will be LMV-6.

Minimum charge
The minimum charge will be the corresponding rate in the appropriate schedule plus 25%. The minimum charge shall, however, be charged on pro-rata basis.

Other provisions shall be applicable as proposed.

Rate Schedule HV - 1
ARC/INDUCTION FURNACE, ROLLING/
RE-ROLLING MILLS AND MINI STEELS PLANTS


This schedule is deleted and merged with HV-2.
Note: As has been indicated elsewhere, the Commission aims to move away from use based categories to the more rational voltage of supply based categories. This would enable tariffs to potentially be more reflective of the underlying cost of supply. The Commission was informed that in the current tariff, demand charges were kept high for high voltage industrial users in the HV1 category while energy charges were kept low, due to problems related to tampering of meters etc. This structure had no rational basis. Now that tamperproof electronic meters have been installed, Tariff Structure for this category should be appropriately amended or merged with other categories, which are fundamentally similar in nature. The Commission has decided to abolish the HV1 category and place current users in this category in the HV2 category, in the interest of ensuring that consumers pay the legitimate price for power.

RATE SCHEDULE HV - 2
LARGE AND HEAVY POWER

This rate schedule applies to all consumers who have contracted load of more than 75 KW (100 BHP) for industrial purposes and or Processing proposes as well as to Arc/Induction Furnaces, Rolling/Re-Rolling Mills, Mini Steel Plants and to any other power consumers not covered under any other rate schedule.

This rate schedule shall also apply to commercial light, fan & power consumers and consumers covered under Rate Schedules LMV-2 and LMV-6, subject to the condition that they opt for this Rate Schedule(HV-2) and arrange the MDI/electronic metering equipment themselves.

The current tariff for this category consists of demand charge of 125 per KWH per month plus an energy of Rs. 3.70 per KWH. The Commission appreciates the fact that the electricity rates for industry in this State are quite high and a sharp increase in the rates will be counter productive. The number of industrial units setting up their own captive power plants is increasing and this trend needs to be arrested. We are, therefore, increasing the demand and energy charges only by 5%.

A special rate for seasonal industries has been introduced. To ensure availability of power to industries connected to independent feeders emanating to 132 KV, 220 KV, and 400 KV Sub stations, they shall be allowed to operate during the peak hours as well. They will be able to do so by paying small additional charge of 15% of the amount of bill in a month. These consumers will be ensured minimum 500 hours supply. In case of shortfall in the guaranteed hours of supply a rebate of 1% per 10 hours or part thereof shall be admissible on the total amount of the bill.

Fixed charges Rs. Per KVA per month and energy charges Paise per unit)
UPERC
As Approved
Demand Charge
PLUS
130
Energy Charge 390
For consumers getting power supply in restricted hours 15% surcharge on demand and energy charges
For consumers getting power supply on independent feeders emanating from 400/220/132 KV. 15% surcharge on demand and energy charges and have the assured supply of minimum 500 hours in a month. In case of shortfall in the guaranteed hours of the supply, a rebate at the rate of 1% per ten hours or part thereof shall be admissible on the total amount as computed under rate of charge.

* In case where demand is recorded in KW, the demand charge shall be computed assuming the power factor as 0.85.
* For connection in rural area getting power supply as per rural schedule a rebate of 10% on the amount of demand charge and energy charge will be given.
* In respect of the supply during peak hours/restricted hours, the consumer shall have to take the permission from UPPCL with the intimation to the Commission.

Seasonal Industries

Where a consumer has opted for installation of MDI at his premises and avails supply of energy for manufacturing sugar, ice, or for such other industries or processes as may be specified by UPPCL in consultation with the Commission from time to time principally during certain seasons or limited period in the year and his plant is regularly closed down during certain months of the financial year, he may be charged for the months during which the plant is shut down (which period shall be referred to as off season period), as follows:

Demand charge
(Based on the recorded maximum demand or 30% of the contracted demand which ever is higher)
PLUS
Rs. 130 per KVA per month
Energy Charges
(all consumption in a month)
390 Paise per unit

However during season these consumers shall be billed as per rate of charge.
* The period of season shall not be less than 4(four) continuous months.
* The existing consumers who are desirous of availing the seasonal benefits shall intimate their season to the concerned Executive Engineer of UPPCL under registered cover.
* The prospective consumers classified as seasonal consumers, who are desirous of availing the seasonal benefits shall specifically declare their season at the time of submission of declaration/execution of agreement that their loads should be classified as seasonal loads.
* The seasonal period once notified cannot be reduced.
* The off season tariff is not applicable to composite units having seasonal and other categories of loads.
* The off season tariff is also not available to those units who have captive generation exclusively for process during season and who avail UPPCL's supply for miscellaneous loads and other non process loads.
* Any seasonal consumer if after declaring the period of season consumes power for his main plant during the off season period, shall not be entitled to the above benefit during that particular year. This will be without prejudice to any other action the UPPCL may take.
* The seasonal process is to be notified by Chief General Manager (Com), UPPCL with the concurrence of U.P. Electricity Regulatory Commission.

Billable Demand:

The Billable demand as mentioned above for the month shall be the actual maximum demand or 75% of the contracted demand whichever is higher. However, in respect of seasonal industries during the off season period the billable demand shall be the actual maximum demand or 30% of the contracted demand whichever is higher.

Extra Charge or Rebate :

In case of supply given at 400 volts the consumer shall be required to pay an extra charge of 10% on the amount calculated as per the rate of charge.

If supply is given at a voltage above than11 KV the rebates mentioned below will be admissible on the amount calculated as per the rate of charge.

(a) Above 11 KV to 66 KV - 5%
(b) Above 66 KV to 132 KV 7.5% (10% if load is 10MVA or above)
(c) Above 132 KV - 10% (121/2% if load is 20MVA or above)

Additional Charge :

For Excess Demand :
If the maximum demand of the consumer in any month exceeds the contracted demand such excess demand shall be charged at an additional rate of Rs. 200/- per KVA per month over the normal rate. This additional charge shall be without prejudice to the UPPCL's right to take such other appropriate action as may be deemed necessary to restrain the consumer from exceeding his contracted demand.

Determination of Demand :

Demand measurement shall be made by suitable kilovolt ampere indicator at the point of supply. In the absence of suitable demand indicator, the demand as assessed by the UPPCL shall be final and binding. If, however, the number of circuits are more than one, demand and energy measurement will be done on the principle of current transformer summation metering.

Minimum Charge
For Consumers taking restricted supply and connected on rural feeders:

Rs. 3780/- per KVA or part thereof per year of the contracted demand irrespective of voltage of supply chargeable at the rate of Rs. 315/- per KVA or part thereof per moth of the contracted demand subject to final adjustment in the last bill of the year of account.

For Consumers taking restricted supply on urban feeders:
Rs. 4536/- per KVA or part thereof per year of the contracted demand irrespective of voltage of supply chargeable at the rate of Rs. 378/- per KVA or part thereof per moth of the contracted demand subject to final adjustment in the last bill of the year of account.

For Consumers taking un-restricted supply on urban/independent feeders:
Rs. 6300/- per KVA or part thereof per year of the contracted demand irrespective of voltage of supply chargeable at the rate of Rs. 525/- per KVA or part thereof per moth of the contracted demand subject to final adjustment in the last bill of the year of account.

Note: In respect of Seasonal industries the minimum charge shall be applicable as per above classification. However, the amount of the minimum charge shall be reduced proportionately for the season period. During off season, no minimum charge shall be applicable and only the demand and energy charge shall be payable.

Rate Schedule HV - 3
RAILWAY TRACTION


This schedule shall apply to the Railways for Traction loads.
UPPCL has proposed that the demand charge be increased from Rs. 125 per KVA per month to Rs. 140 per KVA per month and energy charge from Rs,. 3.75 per KWH to Rs. 4.10 per KWH. We are revising the demand charge to Rs. 135 per KWH per month and energy charge at Rs. 3.95 per KWH.

Energy charges (Paise per unit) and fixed charges (Rs. per KVA per month)
UPPCL UPERC
Existing Rates As Proposed As Approved
Fixed Energy Fixed Energy Fixed Energy
125 375 140 410 135 395

Minimum Charge
Rs. 7020/- per KVA per annum of the contracted demand, irrespective of voltage of supply, chargeable @ Rs. 585/- per KVA per month of the contracted demand, subject to final adjustment in last bill of the year of the account.

Any additional charge, if levied on excess demand drawn over and above the contracted demand shall not be taken into account towards the aforesaid amount of minimum charge.

Billable Demand
The billable demand for the month shall be the actual maximum demand or 75% of the contracted demand whichever is higher.

Determination of the Demand :
Demand measurement shall be made by suitable kilovolt ampere indicator at the point of delivery. The demand for any month shall be defined as the highest average load measured in Kilo Volt Amperes during any fifteen consecutive minutes period of the month.

Additional Charge :
For Excess Demand :
If the maximum demand of the consumer in any month exceeds the contracted demand, such excess demand shall be charged at an additional rate of Rs. 200/- per KVA per month over the normal demand rate. This additional charge shall be without prejudice to UPPCL's right to take such other appropriate action as may be deemed necessary to restrain the consumer from exceeding his contracted demand.


Rate Schedule HV - 4
LIFT IRRIGATION WORKS

This rate schedule applies to medium and large pump canals having a load of more than 75 KW. The demand charge may be increased from Rs. 105 per KVA per month to rs. 120 per KVA per month and the energy charge from Rs.2.30 per KWH to Rs. 2.50 per KWH.

Energy charges (Paise per unit) and fixed charges (Rs. per KVA per month)
UPPCL UPERC
Existing Rates As Proposed As Approved
Fixed Energy Fixed Energy Fixed Energy
105 230 130 290 120 250

1. Minimum Charge
Rs. 1920/- per KVA per annum of the contracted demand, irrespective of voltage of supply, chargeable @ Rs. 160/- per KVA per month of the contracted demand subject to final adjustment in last bill of the year of account.

Any additional charge, if levied, on excess demand drawn over and above the contracted demand, shall not be taken into account towards the aforesaid amount of minimum charge.

2. Billable Demand
The billable demand for the month shall be the actual maximum demand or 75% of the contracted demand whichever is higher.

3. Additional Charge
a) For excess demand :
If the maximum demand of the consumer in any month exceeds the contracted demand, such excess demand shall be charged at an additional rate of Rs. 200/- per KVA/month over the normal rate. This additional charge shall be without prejudice to the UPPCL's right to take such other appropriate action as may be deemed necessary to restrain the consumer from exceeding his contracted demand.


Rate Schedule HV 5


For Floriculture and Mushroom Process
This schedule is being discontinued with effect from the tariff-order.

Rates for departmental employees
At present UPPCL recovers a fix amount per month from its serving and the retired employees. The rates at which recovery is made from different categories of employees along with the increase proposed by UPPCL is given below:

During the Public Hearing several consumer groups objected to the employees of UPPCL and the State Generation Companies receiving unlimited power by paying a fixed charge. On the other hand the representatives of the employees have stated that concessions on this nature are given to the employees by many Public Sector Undertakings and should continue for the serving and retired employees of the erstwhile UPSEB. Our approach to the question of tariff setting is that no one should be entitled to free electricity or to un-metered electric supply. UPPCL has drawn up a programme of installing meters for all categories of consumers and has given an undertaking to Government of India that all consumers will be provided metered electricity by December 2001. The employees of the UPPCL and State Generating Companies could not be an exception to this. Therefore, consumption by employees should also be metered. They should be charged at the same rate as other domestic consumers. This would ensure energy auditing and promote good accounting practices. UPPCL and other Generating Companies would be free to grant an allowance or reimburse a specific amount to consumers in this category. The decision whether to grant an allowance or reimburse the expenditure and the scale at which this should be done lies within the purview of the Board of Directors of the Companies. Meanwhile, till the meters are installed, the fixed rate paid by employees be increased by 25 percent.

REBATES AND PENALITIES

Power Factor Rebate for HV Consumers
Whenever the average monthly power factor is more than 0.90 and upto 0.95 a rebate of 0.25% on the billed amount will be given. A rebate of 0.50% shall be given on achieving 0.95% power factor. Further, if the power factor goes above 0.95 and upto unity an additional rebate of 0.1% for every 0.01 increasing power factor above 0.95 will be allowed.

Power Factor Penalty for HV Consumers

In respect of the consumer upon whose premises trivector meter/bi-vector meter/two part tariff meter is installed, if the monthly average power factor falls below 0.85 (lagging) the consumer shall pay, on the billed amount, the low power factor surcharge of 1% for each 0.01 fall in power factor below 0.85 upto 0.80. In addition, if the power factor falls below 0.80 (lagging), then the low power factor surcharge shall be charged at the rate of 2% for each 0.01 by which monthly average power factor falls below 0.80 but this charge shall be limited to 0.70 only.

Demand Charge

Demand charge at present is payable by consumers who are covered by HV-1, HV-2, HV-3 and HV-4. In order to encourage industries, we feel that consumer maintaining higher load factor should be given some incentives. The Uttar Pradesh Reforms Act 1999 also empowers the Commission to make distinction between consumers having different load factor or power factor. In view of this we feel that all consumption in HV-2 and HV-3 Categories in excess of 60% annual average load factor shall receive a rebate of 10% of the energy charge per unit.

Surcharge for Late payment
The existing surcharge for different categories of consumers is given below:

Surcharge Provisions For Late Payment
Categories Surcharge
Domestic- rural
Commercial -Rural
Rs.1.00/ per connection/month for payments made
After 2 months from due date
Domestic- others
Commercial- others
@ 1.5% per month for payments made after
2 months from the due date
LMV-5 & LMV-8 @ 1.5% per month for payments made after
The due date
LMV-6 & LMV-7 @ 1.5% per month for payments made after
1 month from the due date
HV-1, HV-2, HV-3, HV-4, HV-5 7p/Rs.100/per day for payments made after the due date

It is apparent from the above information that late payment surcharge is levied at different points of time after the due date. The rates are also different for various categories of consumers. In Commission's view late payment is a financial charge, which should not be different for various categories. Therefore, a single rate of 2% per month or part thereof for the period of delay from the due date should be payable by the consumers.



CHAPTER 8: Bulk Purchase Price For NPCL and KESCO

8.0 Having arrived at the Tariff Schedule of all Licensees in 2000-2001, the Bulk Purchase Prices for NPCL and KESCO's power purchase from UPPCL, is required to be determined

NPCL
8.1 Noida Power Company Limited (NPCL), the distribution licensee for the Greater Noida area, filed the ARR/Tariff Petition before the Commission on 21-1-2000. This was subsequently amended in response to the revisions made by UPPCL to their petition. NPCL has informed the Commission that their agreement with the Government required them to charge the same Tariff as UPSEB (since succeeded by UPPCL). NPCL has requested, that keeping this requirement in mind, they should be allowed an input price that would allow their Revenue Requirement to be met. In light of these facts, the Tariff Schedule of UPPCL and KESCO shall apply to NPCL also.

8.2 The determination of the Bulk Purchase Price to be paid by NPCL to UPPCL, has been the subject of a long-standing dispute between the two companies. The Hon'ble High Court has referred this dispute to the Commission. The Commission is in the process of conducting hearings in this regard, and is expected to arrive at a finding in the near term.

KESCO
8.3 KESCO's formation was the result of U.P. Electricity Reforms Transfer Scheme 2000, by which UPSEB was trifurcated and the transmission and bulk of the distribution business was transferred to UPPCL. The distribution assets of KESA Zone of UPSEB were transferred to KESCO, which was registered as a separate subsidiary Company of UPPCL. The transfer scheme specified the liabilities to be transferred to KESCO. The Scheme also provided that the profit and loss of KESCO up to March 31, 2000 would be on the account of UPPCL. The important features of KESA Zone of UPSEB are given below:

Table 26: Energy Input into KESA Zone MU

 

Financial Year 96-97 97-98 98-99 99-00
Million Units 1938 2068 2210 2236


Table 27: Number of Consumers

 

  94-95 95-96 96-97 97-98 99-99 99-00 CAGR
Domestic 217846 226001 235289 244500 257240 268682 4%
Commercial 43005 45048 47114 50029 51929 54242 5%
Small&Medium Power 7214 7261 6968 6649 6548 6437 .2%
Large & Heavy 183 221 244 263 270 291 10%
Public Lighting 11 11 11 11 11 11 0%
Water Works 34 34 36 83 120 123 29%
Total 268293 278576 289662 301535 316118 329786 4%

Table 28: Units Billed (MU)

  94-95 95-96 96-97 97-98 99-99 99-00 CAGR
Domestic 340 402 478 525 578 613 13%
Commercial 138 153 173 168 202 173 5%
Small &Medium Power 132 163 106 103 114 103 -5%
Large & Heavy 683 696 672 686 683 626 -2%
Public Lighting 17 17 18 26 31 18 1%
Water Works 21 22 23 35 20 28 6%
Total 1331 1453 1470 1543 1628 1560 3%

Table 29: Collection Efficiency

  95-96 96-97 97-98 98-99 99-00
Amount Billed (Rs.Crore) 413 398 480 558 570
Amount Realised (Rs.Crore) 302 314 379 444 432
Collection efficiency (%) 73 79 79 80 76

8.4 As was observed in the State as a whole, between 1994-94 and 1999-2000 the domestic sector in the KESCO area posted the fastest growth in electricity consumption. While the compound annual growth rate in domestic consumption was 13% and 5% in commercial, it was -2% in large and heavy industries and -5% in small and medium industries. A striking feature of the consumption pattern is that in this period the category of large and heavy industries the units billed per consumer declined by 10% annually. However, despite the annual growth of only 3% in the units billed the revenue assessed increased at 11% per annum in the same period. The increase in the billing per consumer category was at the healthy annual rate of 19% followed by commercial at 12%, industrial and public lighting at 7% and Water Works at 5%.
In large and heavy industries category, 7 consumers are being supplied at voltage above 33 KV and more. These consumers account for about 60% of the total connected load in large and heavy consumer category. Of the above 7 consumers, 2 consumers are being supplied electricity at 132 KV, while balance 5 are being supplied at 33 KV level. The two large consumers have a contract demand of 89 MW.

8.5 The licensee is required to file with the Commission the Annual Revenue Requirement at current tariff for the ensuing financial year. Accordingly, KESCO filed the ARR for 2000-2001 on April 24, 2000. In the petition KESCO has stated that they propose to charge the same retail tariff as UPPCL. Therefore, taking into account the permissible expenditure, the excess or shortfall in the revenue may be adjusted by changing the bulk supply tariff of UPPCL. The tariff filing has projected the expected revenue from the sale of power and all expenses other than power purchase expense. The balance amount would be available for payment of bulk power supply charges to UPPCL. After KESCO had filed the petition, the UPPCL revised the proposed retail price tariff schedules for 2000-2001. As KESCO had assumed the same retail tariff as UPPCL, the application was revised taking into account the amendments proposed by the UPPCL. The following tables summarise KESCO's expenditure estimates and the per unit rate proposed for bulk power supply:

Table 30: Expenses other than Power Purchase Rs Crore

  98-99 99-00 00-01
Wages and Salaries 36.3 38.5 37.2
Administrative & General Expenses 0.9 1.1 1.95
Repair and Maintenance 8.8 7.5 7.93
Interest on Security Deposit 0.0 0.3 1.04
Depreciation 0.0 0.0 18.98
Contribution to TBL Fund 0.0 0.0 4.83
Taxes & contingency reserve 0.0 0.0 8.36
Total 46.0 47.4 80.32

Table 31: Input Price Derivation By KESCO

A Revenue billed (Rs. Crore) 605
B Non-realisation of bills (Rs. Crore) 101
C Net revenue Billed (Rs. Crore) (A-B) 504
D Reasonable Return (Rs. Crore) 11.28
E Expenses excluding power purchase expense and
Non-realisation of bills (Rs. Crore)
80.32 *
F Revenues available for power purchase (Rs. Crore)(C-D-E) 412
G Energy Demand in 2000-01 (Million Units) 2345
H Power Purchase Price to be paid by KESCO to UPPCL (Rs./Unit (F/G*10) 1.76

* (Excludes 15.4 crore of interest on loans from UPPCL)

8.6 The Commission considered KESCO's application and despite several deficiencies in the application, decided to proceed with the matter as Tariff determination for 2000-2001 was being delayed. The Commission directed KESCO to publish the extracts of their ARR for 2000-2001 and invite objections from interested parties in accordance with Section 24(4)(b) of the U.P. Electricity Reforms Act 1999. KESCO published the ARR and Tariff proposals in local newspapers. The Commission also held a Public Hearing on June 29, 2000 at Kanpur.

Kanpur Objections/Hearings

8.7 Various stakeholders have conveyed their objections and comments on the KESCO Petition to the Commission by post, in response to the Public Notice to that effect, and in person, at the Public Hearing held at Kanpur on 29th June 2000. The important points raised are described below:

8.8 Several industrial users have contended that the Minimum guarantee charge for certain categories, aided by wrongful actions like deliberate incapacitation of meters and non reading of meters by conniving staff, has encouraged wasteful use of powers, while for others, minimum charges combined with limited supply has meant very high effective power tariff. Further, it was stated that a minimum charge and a fixed charge co-existing with each other is without logic. Fixed/minimum charges were imposed when number of consumers and their total consumption was small compared to the available potential of the distribution network, which is not the case today. Hence, these charges should be abolished, and the tariff should be a simple rate rather than being the complicated sum of various charges that it is today.

8.9 The need to control the substantial quantum of power theft has been emphasized. Several stakeholders have stated that T&D losses estimated around 30 percent should be reduced and consumers should not be burdened by any price increase. It was alleged that if power consumption by the industries drawing power at 132 KV are excluded than on the remaining power, the theft rate would be between 60-80 percent. Other stakeholders have alleged that there exists a deliberate tendency on the part of the licensee towards faulty and inflated billing to cover up inefficiencies and theft, which should be checked, by making employees accountable.

8.10 It was suggested by some stakeholders that tariff determination should not be taken up at this stage and priority should be given to privatisation after which these initiatives would have the desired effect. Determining the tariff and input price now would prevent any gains from privatisation. Hence, the selected private bidder should be required to file the ARR. It was contended that privatisation was essential for infusion of funds for improvement of the distribution infrastructure. It has also been contended that KESCO should be free to buy power from any source. Several stakeholders have expressed regret at the absence of any service orientation in the behaviour of KESCO officers and staff with consumers. It has been suggested that competition should be introduced to provide option and encourage efficiency, and power rates in other more efficient States should be kept in mind while setting power tariffs in U.P.

8.11 Some industrial users have suggested that continuous process industries should not be charged higher rates since continuous supply is non existent. Others suggested that the continuous/non continuous categories should be rationalized to end this arbitrary classification. The tendency to charge additional security from time to time when a certain security was deposited at the time of signing of the agreement was opposed, and interest on security deposits comparable to the fixed deposit rates was requested. Several industrial users have opposed peak hours restrictions. It has been contended that peak hour impositions are not provided for in the agreement originally signed by consumers and are a source of harassment by KESCO employees, and they should be abolished. The poor quality and unreliable nature of power supply has been pointed out. It has been contended that constant tripping during the non rostering period raises cost of production for manufacturers. Several industrial users have stated that KESCO's requirement that the consumer should install a meter in a meter room on the front offset of the premises is objected to by KDA. This difficulty should be resolved. It was contended that decline in industrial users on account of these factors was the main cause of KESCO's dismal state.

8.12 The poor state of the distribution infrastructure has been pointed out. It was suggested that funds should be made available to repair the underground cables leading from Panki Power Station and the other infrastructure. Several consumers have contended that domestic connected load should not be based simply on 75% of the total load of the connection points since all the points are not simultaneously used. Widespread corruption in preparation of estimates for deposit works was alleged. It was suggested that the customer should be allowed to purchase the material indicated in the estimate and make it available to KESCO. Others pointed out that even though the consumer pays for this material, KESCO treats it as its own property when the connection is surrendered.

8.13 Representatives of the Arc Induction Furnace Association requested the Commission that the existing concessions in Hills, Bundelkhand and some Eastern Districts, should be continued. The Mukhya Nagar Adhikari, Kanpur, stated that the Nagar Mahapalika provided public lighting in public interest, and no revenue was realized for this service. Hence power rates should not be increased on this category.

8.14 Several stakeholders expressed the view that given these inefficiencies and potential for improvement, power rates should not be increased and KESCO should meet the revenue gap through improvements. It was alleged by some that KESCO losses are caused by a deliberate propensity towards corrupt practices. Hence losses should not be the basis for burdening the consumer further. Others suggested that a provision for non-performance penalties on KESCO should be introduced. Some were of the view that they would be willing to pay more in the event of improved quality of power.

8.15 UPPCL has also filed several objections to KESCO's proposal of Rs. 1.76 per unit as the bulk power purchase price. They have stated that the estimates of revenue projected by KESCO are very low as the ARR has been projected on the basis of revenue realized and not revenue billed. The provisioning of 16.67% of revenue billed but not realised should not be accepted by the Commission. They also pointed out that in the Transfer Scheme-2000 out of Rs.630 Crore of estimated receivables Rs. 570 Crore was transferred to UPPCL, which left only Rs. 60 Crore on KESCO's account. KESCO in response has stated that it considers provisioning of revenue not realisable a prudent accounting practice. KESCO has also pointed out that in the past there has been a significant gap between the revenue realised from the consumers and the actual amount billed.

8.16 Inefficiency in revenue collection has been persistent and the amounts billed in one year have been largely uncollected even in subsequent years. UPSEB did not follow the policy of provisioning of non collectable receivables. As a result, the shortfall in collection efficiency was not recognized as a loss. Consequently the T&D loss figure, defined as the difference between the energy input and energy billed was non realistic and artificially low. The Transfer Scheme recognized the problem of unrealisable revenue, and 80% of revenue receivable was provided for as bad debt. According to KESCO the shortfall in collection efficiency figures is also a disguised form of loss and hence, revenue has been projected on the basis of revenue realised and not revenue billed.

8.17 UPPCL has also objected to KESCO using billing rates different from those used by them for the projection of revenue in 2000-2001. This has resulted in the revenue being lower than it should be. KESCO has replied to this objection stating that the tariff schedule provides for different tariffs for different categories of consumers. Within the same consumer category different tariff slabs have been fixed on the basis of the load of the consumer, voltage at which he received power and the number of units consumed. On account of consumer and load characteristics the billing rate in two areas need not be same. In addition, the tariff schedules also stipulate the payment of maximum charges in case registered energy consumption is below the minimum threshold level. The minimum threshold level is usually derived by applying a certain load factor to the sanctioned /connected load of the consumer. Minimum charges inflate the average billing rate beyond the per unit energy consumption rate specified in the tariff schedule. If the percentage of consumers paying minimum charges in two areas does not match, the average billing rates would also vary.

8.19 UPPCL has stated out that the collection efficiency assumed by KESCO in their revenue projection is low. In reply KESCO has stated that while UPPCL has undertaken a comprehensive reform programme for which it is receiving funds from the World Bank and the State Government, no assistance for meeting the required capital expenditure has been earmarked for KESCO. KESCO is unable to undertake through its own funds a comprehensive exercise to improve metering, billing, collection procedures and the organizational set up. As a result KESCO would be unable to affect efficiency improvement of the same order as UPPCL. Therefore, while UPPCL plans to improve its collection efficiency by 5%, KESCO would be able to effect improvement of only 2%.
8.20 UPPCL has also objected to the increase in line losses from 26.3% in 1998-1999 to 30.2% in 1999-2000. In response KESCO has pointed out that since 1996-97 the difference between input units and units billed, that has been showing a rising trend, reached 30.2% in 1999. The increase in T&D losses in 1999-2000 can partially be attributed to the reduced level of consumption in the unmetered public category. UPPCL has stated that the reduction in line loss by 2% assumed by KESCO in their application is too low as compared to 5% provisioned by UPPCL in their revenue projections. KESCO considers a decline of 2% in line losses, as a realistic target as due to lack of funds they are unable effect improvements in the distribution system.

8.21 UPPCL has also stated that the tariff application includes contribution to contingency reserves, which should not be allowed. In response KESCO has stated that the Sixth Schedule of the Electricity Supply Act 1948 provides for a compulsory annual contribution to the contingency reserves. Such contributions can be considered a part of the allowable expenses. On the basis of the increase in average tariff at 24.99 percent, UPPCL has suggested input price of Rs. 3.02 per unit for 2000-2001. At the current tariff UPPCL expects the input price to be Rs. 2.47 a unit. UPPCL has estimated the input price on the recommendations of the Hangal Committee appointed by UPSEB. This Committee has worked out the input price on the principle that KESCO Zone, because of its better consumer mix, was cross subsidizing the other areas of UPPCL. Having transferred KESA's assets to KESCO, this cross subsidy should be maintained through suitable adjustments in the input price. The input price has been worked out on the basis of a notional figure of Rs. 1.57 per unit taken as the cost of supply at the transmission end. This has been adjusted by the ratio of the average billing rate in KESCO Zone and the average billing in the rest of the State. The input price is then raised by 5%, so as to factor in the expected reduction of 5% in the T&D loss, which KESCO is expected to achieve in the first year. In reply KESCO has stated that the notional figure of Rs.1.57 per unit used as a base price by UPPCL has no relationship with the actual contribution by KESA Zone. UPPCL has not given any justification for its decision of not using the actual revenue data of KESA Zone for determining the input price for KESCO. The use of notional figures instead of actual revenue data has led to an incorrect assessment of the input price. They have further stated that in 1999-2000 1560 MU were billed in KESA Zone. If revenue was realised at Rs. 2.47 per unit the realisation would have been Rs. 570 Crore instead of only Rs.432 Crore actually realised by KESA. This clearly illustrates that using notional instead of the actual is not the correct method to determine the fair input price.

8.22 KESCO has assumed that energy to be sold in KESA Zone in 2000-2001 will be 1660 MU a growth of 6.4 percent on the units billed in 1999-2000. Significant increase of 63 MU out of a total of the increase of 100 MU is expected in the category of Large and Heavy Industries. Consumption growth of 6 percent in commercial category may be viewed in the light of a decline of 12.67 percent in 1999-2000. KESCO has projected the difference of 29.2 percent between energy billed and energy output. Accordingly they have projected energy demand at 2345 MU. As we have assumed a 5 percent drop in T&D losses the difference between energy input and energy billed has been reduced to 25.2 percent. On this basis we have projected the energy demand at 2219 MU.

8.23 We have examined the expenditure projections given by KESCO. We have noted in the case of UPPCL that the expenditure on wages and salaries is relatively higher than the all India average. Applying the same norms, the Commission expects a reduction of 3 paise per unit of energy sold in the expenditure on wages and salaries. We have also made an adjustment in the depreciation expenditure. In the tariff application, KESCO has stated that the Transfer Scheme does not provide a break up of the total fixed assets, and details of assets are not available with them. It has been further stated that KESCO has appointed a Consultant for preparing and maintaining the books of accounts. Once the records are updated, the details of assets would be available. Meanwhile, it has been proposed that the depreciation may be allowed at the rate of 7.3% per annum of the value of assets. On the other hand, UPPCL in the Tariff application has proposed depreciation at the rate of 4.8% of the value of assets. Considering that KESCO has been carved out from the area covered by UPSEB. We think it would be appropriate to allow the same rate of depreciation to KESCO as UPPCL. As and when details of assets are available the appropriate rates would be applied to different category of assets.

8.24 We have not made any other changes in the other expenditure items except bad debts. In the Tariff application, KESCO has stated that their collection efficiency from current billing was 76% in 1999-2000. An improvement of 2% over this has been proposed. It is further proposed that the balance should be written off as bad debts. Similarly, the technical and commercial losses, which were estimated to be 30.2% in 1999-2000, are also proposed to be reduced by 2%.
We have considered the arguments advanced by KESCO. In Para 5.23, the Commission has given reasons for not accepting the proposal of UPPCL of writing off 3.2% of the value of sale as bad debts. The same consideration applies in KESCO also. As in the case of UPPCL, we have provided for cost of borrowing for working capital equal to 70 days receivables of sales. This should be adequate to meet the working capital requirement of KESCO. We would like to emphasise that we are not rejecting the concept of bad debts but the information provided by both UPPCL and KESCO is inadequate to consider a part of receivables as unrecoverable.

8.25 With a view to improving the efficiency of electricity sector and instilling confidence in potential investors, the Commission proposes to state in advance that the following efficiency targets should be achieved by KESCO in each successive year for the next 5 years, to improve collection efficiency and reduce the difference between energy billed and energy input.

Table 32: Efficiency Improvement Targets

  99-2000 2000-01 2001-02 2002-03 2003-04 2004-05
Difference between energy input and energy billed 30.2% 25.2% 22% 20% 18% 15%


In the event that KESCO's actual performance is equal to the targets set, the permitted return on Capital Base for that year would be the rate approved by the Commission. For each 1% reduction in the gap between units billed and units input beyond the target fixed, 40% of the resulting additional gain in revenue shall be payable to KESCO as an additional ROR on CB over and above the ROR to which KESCO may be eligible in that year.

REVENUE

8.26 The Commission has reworked the capital base and the expected revenue at current tariff for 2000-2001.

Table 33: Capital Base (Rs. Crore)

Ref. Category Kesco's proposal
2000-2001
As approved by UPERC 2000-2001
1. (a) Fixed Assets 284 284
  Less Consumer Contribution 36 36
(b) Intangible Assets 0.0 0.0
(c) Work in Progress 0.0 0.0
(d) Investment under Para-IV of Sixth Schedule 1.3 1.3
(e) Working Capital Sum of    
(i) Av. Cost of Stores 1.98 1.52
(ii) Av. Cash & Bank Balance 4.33 3.91
NA Capitalised loss allowed by the Commission 0.0 0.0
  Sum of above (a) 255.61 254.73
Less      
2. (i) Depreciation 18.98 12.48
(ii) Loan or Subvention from State 0.0 0.0
(ii) a Loans from State approved Institute 135 135
(ii) b Debentures issued by licensee 0.0 0.0
(iii) Consumers' Security in form of cash 35.33 35.33
(iv) Credit Amount at Tariff & Dividends control reserve 0.0 0.0
(v) Credit Amount at Development Reserve 0.0 0.0
(vi) Amount for Distribution to the Consumer 0.0 0.0
  Sum of above (b) 189.31 182.81
  Net Capital Base (a-b) 66.3 71.92


Table 34: Reasonable Return (Rs. Crore)

    Kesco's proposal As approved by UPERC
Sl. No. Description 2000-01 2000-01
1 Reasonable Return on Capital base 10.61 11.51
2 Income from Investments other thant hose investment compulsorily made under Para iv of sixth schedule 0.0 0.0
3 Government loans 0.0 0.0
4 Other approved loans 0.68 0.68
5 Debentures 0.0 0.0
6 Development Reserve 0.0 0.0
7 Such other amount as may be allowed by the central government 0.0 0.0
  Total Reasonable Return 11.28 12.18


Table 35: Non Tariff Income (Rs. Crore)

Sl.No. Details Kesco's proposal
2000-2001
As approved by UPERC
2000-2001
1 Rental of meters and other apparatus 2.94 2.94
2 Sale & repair of lamps and apparatus 0 0
3 Rents 0 0
4 Transfer fees 0 0
5 Investments, fixed and call deposits 0 0
6 Other general receipts accountable
for income tax and incidental to
Business
0.27 0.27
7 Revenue from surcharges for late payment 0.14 0.14
  Total 3.35 3.35

Table 36: Expected Revenue at current Tariff (Rs. Crore)

Sl.No. Category Units Billed (MU) Billing rate(Rs. /Unit) Revenue
1 Domestic 644.00 1.88 121.07
2 Commercial 191.00 4.39 83.85
3 Industrial      
(I) Small & Medium 111.00 5.15 57.17
(ii) Large & Heavy 664.00 4.07 270.2
4 Public Lighting 19.00 2.22 4.22
5 Water Works 31.00 2.86 8.87
  Total 1660.00   545.42

Note: Totals may not tally due to rounding off figures.

Table 37: Expenditure (Rs. Crore)

Sl.No Expenditure Details Kesco's proposal 2000-2001 As approved by UPERC 2000-2001
1 Distribution and sale of energy    
  Wages and salary 37.22 32.24
  Administrative and general expenses 1.95 1.95
  Non labour repair and maintenance expenses 7.93 7.93
2 Rents/Rates and Taxes other than Income Tax 0 0
3 Interest on loan borrowed from State approved Institution 15.4 15.4
4 Interest on debentures 0 0
5 Interest paid on security 1.04 1.04
6 Legal charges 0 0
7 Bad Debts   0
8 Auditors fees 0 0
9 Depreciation 18.98 12.48
10 Interest on working capital   16.23
11 Rebate   5.41
12 Contribution to provident fund 4.83 4.83
13 Expenses on training 0 0
14 Bonus paid to employees 0 0
15 Other Expenses 0 0.252
  Total Expenditure before special appropriation 87.35 97.77
  SPECIAL APPROPRIATION TO COVER:
1 Losses 0 0
2 All taxes on income and profits 7.06 7.63
3 Instalment of written down amounts in respect of new issues 0 0
4 Contribution to contingency fund 1.3 1.3
5 Contribution towards arrear depreciation 0 0
6 Contribution to development reserves 0 0
7 Debt redemption obligation 0 0
8 Other special appropriation 0 0
  Total Special Appropriation 8.36 8.93
  TOTAL EXPENDITURE 95.71 106.69
  Energy Purchased (MU)   2219
  Purchase Price of Energy (Rs. in Crore)   429.89
  Energy Purchased (MU)   2219

8.17 There is a difference in the billing rate of UPPCL and KESCO. KESCO has projected revenue in some categories at rates that are below that of UPPCL. In case of domestic, commercial categories we have used the billing rates of UPPCL and for the rest we have adopted the billing rates of KESCO. The reason for this is that in case of domestic and commercial categories the Commission does not find any justification for deviation. However, the Commission has examined the sale pattern of two large and heavy industries in the KESCO area. Since two units consume about 90 MW of power every year and draw electricity at 132 KV the average billing rate would be different from that of UPPCL.

8.19 In case of UPPCL only a few industrial units draw power at 132 KV. The average connected load of the UPPCL units is also not as large as in KESA Zone. Hence, we consider it appropriate to take the special consumption characteristics of large and heavy industries in Kanpur. Similar reasons prevail for using the KESCO's billing rates for public lighting at Water Works. On the basis of the adjustments made we have worked out the fair input price taking into account the revised tariff in 2000-2001 at Rs. 2.15 per unit. Since KESA is a subsidiary of UPPCL, dividend can also accrue to them. If we add this then the effective input price works out to Rs 2.21 per unit.

8.20 This input price is higher than Rs. 1.76 per unit proposed by KESCO. This is also higher than the contribution of KESA Zone to UPPCL in 1997-1998, 1998-1999 and 1999-2000. Till KESCO was created as a separate Company the entire expenditure of KESA Zone was met by UPSEB. The notional input price for 1997-98, 1998-1999 and 1999-2000 works out as Rs. 1.49 per unit, Rs. 1.66 per unit and Rs. 1.60 per unit respectively.

8.21 KESCO has filed the petition on the presumption that they would be buying their entire power requirement from UPPCL. The Commission is of the view that for various reasons of practicality, it would be desirable to allow this arrangement for the moment. The wholesale market for power in the country is not sufficiently developed to enable KESCO to purchase power from a variety of alternative sources. The essential accompanying legal framework to enable convenient wheeling of power is also not fully in place. Licensees essentially have to rely on their allocation in the generation from Central Generating Stations and the Central Pool, and supply from State Generation Units. No separate allocation is available to KESCO from Central Generation Stations or the Central Pool, and the possibility of entering into PPA's with the State Generation Companies has also not been explored by KESCO. Further, UPPCL is the sole owner of KESCO, which is its subsidiary company, and the later is served by the Transmission infrastructure owned by UPPCL. However, for the future KESCO should start examining all available possibilities in the interest of minimizing its cost of power. The State Government should also consider allocating a portion of the State share from the Central Generating Station to KESCO.



CHAPTER 9: Concluding Remarks

9.0 The over all picture of the power sector in the State is complex and ambiguous. A curious aspect of the management strategy of UPPCL as well as the State Government has been that they have not made many efforts to generate support for the planned organisational changes. Active support of consumers and the employees must be enlisted. It appears na´ve to believe that major changes in the sector could be brought about stealthily. While there is in-activity in selling reforms in the power sector within the State, a campaign has been launched to sell them to the external funding agencies. To be sustainable such reforms have to be owned by the stakeholders first and they should believe in their efficacy. Otherwise, while stray actions taken may even be successful, they do not constitute a viable strategy.

9.1 The crisis in the working of the power sector in the State is acute and the shortcomings painfully evident. The management of the newly created Companies have a chance to will, and the means to implement, bold policies for improving their performance. They must seize this chance.

In conclusion, it is hereby stated that the Commission, not having found the indicated Licensees' Required Revenue calculations and Tariff proposal to be in full conformity with the letter and spirit of the statutory requirements, has, in exercise of powers conferred by the Uttar Pradesh Electricity Reforms Act 1999, determined an alternative calculation of Revenue Requirement, Expected Revenue from charges, and the Tariffs based thereon, which the licensees shall accept and implement, along with related directions, as indicated in this order.

This order is signed, dated and issued by the Uttar Pradesh Electricity Regulatory Commission on this 27th day of July 2000.

(Arun Sarkar) (SC Dhingra) (JL Bajaj)
Member Member Chairman

Date: 27 July 2000.
Place: Lucknow.



ANNEX-1

 

Comparision of Key Performance Indicators of Thermal Power Stations

S.N.

ITEM Unit UPRVUN
Average
All India/NTPC
(Similar old unit)
Gap
1 50 - 60 MW
  PLF % 17.93% 40.00% 22%
  Auxiliary Consumption (%) % 17.78% 12.20% 5.6%
  Station Heat Rate Kcal/kWh) 2774 NA  
  Specific Coal consumption (kg/kWh) 0.98 NA  
  Specific oil consumption (ml/kWh) 16.71 NA  
2 100 - 110 MW
  PLF % 29.86% 45.00% 15%
  Auxiliary Consumption (%) % 13.82% 12.2% 1.6%
  Station Heat Rate Kcal/kWh) 2854 2650 204
  Specific Coal consumption (kg/kWh) 0.91 NA  
  Specific oil consumption (ml/kWh) 15.76 15 0.76
3 200 - 210 MW
  PLF % 51.05% 65.00% 14%
  Auxiliary Consumption (%) % 10.13% 9.70% 0.4%
  Station Heat Rate Kcal/kWh) 2626 2524 101
  Specific Coal consumption (kg/kWh) 0.85 0.68 0.17
  Specific oil consumption (ml/kWh) 5.08 3.86 1.22
4 500 MW
  PLF % 90.68% 91.00% 0%
  Auxiliary Consumption (%) % 7.50% 7.50% 0.0%
  Station Heat Rate Kcal/kWh) 2766 2500 266
  Specific Coal consumption (kg/kWh) 0.71 0.68 0.03
  Specific oil consumption (ml/kWh) 1.39 3.50 -2.11
5 GCV OF COAL KCal/Kg 3399 3645 246
  Other Indicators        
6 Generation (Pre-comm & Commercial) MU 20190 109505  
  Energy at Bus bar MU 18315 102078  
7 Fuel Rs. In Cr. 1398.22 6672.49  
  Fuel cost per Unit at Bus bar Paise/kWh 76.34 65.37 10.98
8 Salries, wages (Inc. PF Contrb.) Rs. In Cr. 217.66 476.30  
  Other Benefits     179.86  
  Salaries+Other benefits/ Unit at Bus Paise/kWh 11.88 6.43 5.46
9 Administration & Other Expenses Rs. In Cr.   343.26  
  Operation, Repair & Maintenance Rs. In Cr. 217.10 461.26  
  O&M+Admin. expenses/ Unit at Bus Paise/kWh 11.85 7.88 3.97



ANNEX-2: COST OF POWER PURCHASE

 

 

PURCHASES

AS PER UPPCL (MU)

AS PROPOSED (MU)

RATE RS./UNIT

COST (RS.CRORE)

UPRVUNL

18315 18315 1.36 2490.84
UPJVNL 5408 5408 0.35 189.28
NHPC        
SALAL 172 249 0.69 17.18
TANAKPUR 115 144 1.56 22.46
RAJGHAT 32 - -  
CHAMERA 103 - -  
URI 426 450 2.86 128.7
NTPC        
SINGRAULI 4442 6800 1.01 686.8
AURAIYA 1066 1900 1.29 245.1
RIHAND 1674 2700 1.44 388.8
ANTA 372 680 1.44 97.92
DADRI 273 - - -
DADRI GAS 597 950 1.57 149.15
UNCHAHARI 1162 1247 1.91 238.17
UNCHAHARII 522      
TANDA 867      
NPC        
NARORA 342      
RAPP 23      
OTHERS (east) 2095      
TOTAL   38843   4654.4

 

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