The combined application for ARR and Tariff Revision for 2002-03 presented by the petitioner, MPSEB has been scrutinized and the below mentioned features deserve particular mention:- 

The Board has drawn our attention to the fact that prior to the setting up of the ERC the Board followed the general principles as prescribed in Section 59 of the Electricity (Supply) Act, 1948.  Now after the Adhiniyam, 2000 has come in force, the powers for fixation of Tariff are vested in the Commission and the Regulation of the Commission prescribes that it shall consider the following:-

a)                  Principles under Section 59 of the Electricity (Supply) Act, 1948

b)                  That the Tariff progressively reflects the cost of supply of electricity at an adequate improved level of efficiency.

c)                  The factors that would encourage efficiency and economic use of resources, good performance, optimum investment and other matters which the State Commission considers appropriate.

d)                  That the interest of the consumer is safe-guarded and at the same time, the consumers pay for the use of electricity in a reasonable manner, based on average cost of supply of energy. 

e)                  That electricity generation, transmission, distribution and supply are conducted on commercial principles.

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4.2       The Board has requested the Commission to determine the tariff in such a manner that the Board earns a minimum return of 3%.   The petitioner has highlighted the overwhelming need for an increase in tariff on account of increase in cost of operation and maintenance and the high cost of supply to the LT consumers.  MPSEB states that in the past there was insufficient increase in the tariff and there were high technical and commercial losses coupled with inefficiency and the subsidy provided by Govt. of M.P. was at a low level.  The Board requires dedicated efforts and significant capital spending for improvement in operational efficiency and to attract substantial amount of capital investment. 

4.3       The petition points out that increasingly the Board is having to depend on power purchase and this has necessitated additional expenditure.  The Board is conscious of the need for significant reduction in commercial and technical losses and significant increase in expenditure on repairs, maintenance, up-gradation and renovation of generating station.  The Board has stressed the need for replacing flat rates with metered unit rates and the need for promoting consumer consciousness regarding their obligations for timely payment.  Employee motivation, training, strengthening of HRD and improving close customer communication have also been emphasized in the programme of reform launched by the Board. 

4.4       The Petitioner has prayed for the creation of Regulatory Assets to carry forward those portions of revenue requirements that have not been included for some reason.  The purpose mentioned is that “this will allow MPSEB to separate the impact of tariff increase over a period of time and thereby mitigate the possibility of significant rate increase in a single year”.  The Board has proposed that a review be instituted by the Commission whereby the actual revenues are compared with the actual expenses and in case the revenues are less than the actual expenses, the difference may be allowed to be carried forward and included in the capital base as part of the ARR of subsequent year.  The Board wants the Regulatory Asset to be depreciated for a period of three years and the depreciation amount for each year to be included in the Annual Revenue Return of that year.  The reasoning put-forth by MPSEB states that projected tariff revenues may not be realized and the proposed efficiency improvements also may not materialised inspite of the best efforts of MPSEB.  The Board also anticipates higher expenditure on account of power purchase which may be necessitated by a drop in Hydel Generation and lower than anticipated plant load factor of thermal power station. 

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4.5       The petitioner has drawn the attention to the existing tariff structure which does not reflect the cost of service to each category of consumers and the high element of cross-subsidization which has created anomalies.  The petitioner has stressed the need for reduction in cross-subsidies gradually in a time bound manner.  In other words this will mean that the rates for all other categories except HT Industrial categories may need to be raised so as to move closer to the cost of service level. 

Annual Revenue Requirement of the Board

4.6       The petitioner states that for the year 2001-02 the Commission had approved ARR of Rs.5320.75 crore against the Board’s proposal of Rs.5929.74 crore.  For the year 2002-03 MPSEB has projected a revised estimate of the ARR for 2001-02 at Rs.6027.42 crore and for 2002-03 at Rs.6023.80 crore.  Various assumptions underlying the projected ARR have been made and these are listed in the petition as follows:-

(i)                  Revenue subsidies & grants have been taken as actually released by Govt. of M.P. during the year.

(ii)                 Interest and finance charges have been taken as 73.38% of undivided Board.

(iii)               Entire expenses of undivided Board for power purchase have been considered as used by MPSEB.

(iv)              MPEB loans have been considered for MPSEB at 73.38% of the loan amount.

(v)                Interest capitalization has been bifurcated between the two States of Chhatisgarh and remaining Madhya Pradesh in the ratio of population.

(vi)              Provision for bad and doubtful debts have been considered 25% recoverable against sale of power. 

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4.7       As the MPSEB has come into existence w.e.f  15.4. 2001 hence accounts of MPSEB are available only from the year 2001-02 onwards. The data of MPSEB for the year 2000-01 has been provided on the basis of assumptions.  Establishment expenditure have been estimated by taking into account 3% growth in salaries to account for annual increments, 22% of basic pay as additional pay, proposed Dearness allowance rate w.ef. 1.5.2002 at 41% and  w.e.f. 1.1.2003 at 49% and Rs.40.00 lac has been considered for payment of bonus.

4.8            Operation, Repair & Maintenance expenses have been estimated on the trend of past years. 

4.9       It has been mentioned that addition in gross assets has been taken on the basis of commissioning schedule and depreciation has been calculated on the asset in use at the beginning of the year. 

4.10     Interest and finance charges have been calculated by including a State Government loan inclusive of load from ADB at Rs.520.00 crore @ 11% interest and a loan from Power Finance Corporation of Rs.100.40 crore at 12.5% rate of interest. 

4.11     The petitioner has given some details of the outstanding dues for more than three years which stood at 434.57 crore in March, 1999 and increased to Rs.597.43 crore in March, 2000 and further increased to Rs.730.46 crore in March, 2001.  These arrears are from HT Consumers.  The corresponding figures for LT consumers are Rs.51.32 crore in March, 1999 rising to Rs.59.19 crore in March, 2000 and Rs.85.02 crore in March, 2001.  While the rising trend of arrears speaks volumes for the lack of determination on the part of MPSEB to recover the outstanding efficiently, the petition fails to report the status as on March, 2002.  This shows the casual approach adopted by the Board towards recovery of its dues.  The Board has prayed that 45% of the outstanding dues may be considered as doubtful debts and may be permitted to be included in the ARR.  The petition does not explain what action the Board management has taken to intensify its recovery efforts. 

4.12     The petitioner has reported a security deposit of Rs.366.22 crore available with it in March, 2002.  The petitioner has tried to justify the upward revision of tariff by saying that in the past six years tariff revision was made in July, 1996 followed by a revision in March, 1999 and the Tariff Revision Order given by this Commission in October, 2001.  Mention has been made of a general annual inflation rate of 5 to 6% and the revision of the cost of coal in February, 2002.  The petition also highlights that while in undivided Madhya Pradesh Korba Power Station used to get coal from South East Coal Fields Ltd. now Sarni Power Station is having to depend on higher cost coal supplied from Western Coal Fields Ltd. The petitioner also repeats the earlier mention of the adverse impact of division of the State and MPEB. 

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4.13     The accumulated unpaid liabilities of the Board stood at Rs.6092 crore in March, 2002.  The petitioner has made no mention of the decision taken by the State Government to accept the principles outlined in the Report of the Expert Group on settlement of SEB dues (Popularly known as Montek Singh Ahluwalia Committee Report).  This report recommended that the State Government may take on the liability of the SEBs and discharge it in future from General Revenue. “A solution along these lines would help the SEBs to clean their balance sheets and place them in a position where they can concentrate on solving the current deficit problem, which is itself formidable”, the report has said.  In view of the acceptances of these recommendations by the State Government, MPSEB should now focus on improving its current performance.      

4.14            Petitioner has mentioned the high cost of power purchase and the Board’s inability to find adequate funds from its current revenues to make a payment of Rs.200.00 crore per month.  The Board has also drawn attention to the old-age of the existing plants at Sarani & Amarkantak and has stressed the need for their modernization and renovation. 

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Revenue Requirement for 2002-03   

4.15     The petitioner has anticipated a revenue gap of Rs.382.49 crore as given below:- 

4.16     The petitioner acknowledges the fact that the advantage of any increase in tariff granted by the Commission will not be available to the Board for the full Financial Year 2002-03 and has therefore requested that the uncovered revenue gap may be treated as Regulatory Asset.  The Petition mentions the sector wise details of required subsidies as given below:- 

4.17     While pressing for its proposal for state subsidy the petition mentions that the amount of subsidy provided/committed by other State Government is of the below mentioned order:-

Gujarat                       -            (2001-02)            1260.00 crore
Haryana                      -            (2000-01)             613.08 crore
Andhra Pradesh            -            (2001-02)            1560.00 crore
Uttar Prdesh                -            (2001-02)             950.00 crore
Rajasthan                    -            (2001-02)            1013.00 crore
Maharashtra                 -            (2000-01)             740.00 crore 

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4.18       Projection of Energy Sales and Revenue under Existing Tariff           

            The Petitioner has generally adopted a 5 year CAGR, consumer category-wise, to project number of consumers, connected load and energy sales for the year 2002-03. In certain categories where the Petitioner felt that the 5 year CAGR is not likely to be achieved, it has modified the growth rate for projecting data. Accordingly the Petitioner projects to sell 15062 million units of electricity to different categories of consumers. 

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4.19          Estimation of T&D Losses

         The Petitioner has mentioned that actual T&D losses for the year 2000-01 were determined at 50.97% for the year 2000-01 and estimated 47.29% for 2001-02, resulting into a loss reduction of 3.7%.  Since 10 nos. RE Societies had been merged with the Board in the month of March, 2002, the Petitioner mentioned that the losses during FY 2001-02 would be 48.77% due to higher losses in the areas of operation of RE Societies during the year 2002-03.  The additional reduction in T&D losses by 1.57% would mean less generation/purchase of power by 770.54 MUs and will result in additional saving of Rs.132.53 Crores during the year 2002-03.

4.20     As the agricultural and single light point connections are un-metered categories, their consumption pattern has to be studied for projecting sales in respect of these categories.  Due to non-metering of all consumers, estimation of agricultural/SLP sales and the T&D losses has been a guesswork and the estimation based on the studies conducted on limited basis i.e. comparatively with small sample size, for assessment of agricultural and SLP consumption.

4.21     In the earlier Tariff Petition No.4/2001, the Board based on the study of limited number of agricultural consumers proposed a load factor of 14% for the year 2000-01 being drought year and load factor of 18% for the normal year 2001-02.  The Commission had got the study conducted and had estimated the agricultural consumption for the year 2000-01 on the basis of 12% load factor i.e. 3640.33 MUs and for the year 2001-02 on the basis of average load factor of 15%.

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4.22     T&D Losses Reduction Programme 

            Ever since the flat rate tariff was introduced for agricultural consumers and subsequently the free electricity facility was extended to the agricultural consumers upto to 5 HP and facility of single light point connection to domestic consumers, it became difficult to segregate the legitimate consumption based on flat rate and assessment of consumption.  The commercial losses, theft and illegal hooking continued to increase and it became convenient to hide the technical and commercial losses under the coverage of un-metered consumption. 

4.23            Amongst various reform activities, Board has given utmost importance for 100% meterisation of all categories of consumers, since it is one of the most important factor for reduction of commercial losses, a massive drive has been launched since January, 2001 for installation of high quality electronic energy meters to new and existing consumers.  The 100% meterisation is a massive task which may take about 3 years to complete, therefore, MPSEB has chalked out a year-wise programme, with priority to HT/LT consumers situated in big cities and urban areas.  Gradually tehsil and rural areas would be covered.  All new consumers are being given only metered connection. 

4.24     Steps have been taken to effectively reduce the technical losses for which pilot projects such as LT Less Distribution System and Renovation of existing HT lines would be covered through 5 years plan programme. 

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4.25     As regards reduction of commercial losses, following specific steps have been taken:- 

i)        Massive checking campaign 

ii)       Electro Mechanical meters are replaced gradually by high quality
electronic meters. 

iii)      Meters of HT consumers are being regularly tested every year so that
accuracy in recording is maintained. 

iv)       Incentive schemes for police staff have been launched for their active role in apprehending culprits and putting challan against them in courts. 

v)       In theft prone areas, bare LT conductors are being replaced by PVC cables. 

vi)      Regular MRI printers are being taken and studied to curb the possibility
of theft. 

vii)      Remote control arrangements are being made to study the consumption
pattern of HT/LT consumers (through modems and computer systems). 

viii)      Energy audit programme has been initiated to detect the most theft
prone areas so that special drive can be made to detect the
illegal connections. 

4.26     Further, to strengthen the checking against un-authorised use of energy, the Board has formed a Flying Squad under the administrative control of Board Member at Jabalpur.  Board has posted various officers of the rank of EE & AE (Vig.) at all the HQs of SE(O&M)/City Circles in the State. 

4.27     While passing the tariff order for the year 2001-02, the Commission had directed that the T&D losses as prevailing at the end of 2000-01 which was determined at the rate of 51%, shall be reduced to 42.88% by 2001-02. Further, the Commission had prescribed the following programme for reduction of T&D loss over next five years as under:-

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4.28     To curb the commercial losses (due to theft, un-authorised hooking, tampering of metering devices and other commercial losses), MPSEB has taken various steps.  In spite of this, due to number of hurdles coming in the way during the first year of the tariff order, the losses are expected to be reduced to the level of 49% by 2001-02.  The Petitioner explained that during first two years, technical losses cannot be reduced; as it would require huge investment for renovation of HT/LT transmission & distribution system.  Under Reform & Restructuring process, the Asian Development Bank is coming forward for funding for renovation of the transmission and distribution system in a phased manner, for which action has already been initiated for preparation of Tender documents & procurement of material. 

4.29     For reducing commercial losses intensive checking is being done by vigilance staff as well as O&M staff & replacement of defective & old mechanical meters by electronic meters.  However, meterization scheme being cost intensive and MPSEB being in severe shortage of funds & cash flow, it would be difficult to keep pace with the bench mark fixed for the first year.  MPSEB proposes following programme for reduction in line losses for next 5 years.

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4.30     The petitioner has mentioned about difficulties being faced by MPSEB staff against unauthorized hooking & theft etc. and bringing the culprits to task.  Attacks on MPSEB vigilance person and O&M staff by defaulting consumers when the former made efforts to detect thefts, effective disconnection, removal of un-authorised connections, has demoralized the staff to some extent.  It is necessary that police personnel should be available to accompany them during checking mission.  However, due to variety of familiar reasons, such as general law and order situation, VIP bandobast duties etc., such police personnel in sufficient numbers are not generally available.  In short, MPSEB claims that it has done all in its power to tackle the commercial loss problems, but with limited success. 

4.31            MPSEB has taken some action to distribute consumers connection on individual feeder-wise allocation and the concerned officers incharge for that feeder shall be taken to task if they fail to reduce the losses and identify the culprits. 

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4.32      Requirement of Energy and sources 

            Keeping in view the projected sale of electricity and level of T&D losses, the requirement of energy and sources are as indicated below:- 

 Generation from MPSEB-owned and joint projects for 2002-03 is project as under:-