1. Analysis of ARR & Tariff Proposal of WESCO for FY 2011-12 February 07, 2011 World Institute of Sustainable Energy (Consumer Counsel)

2. ARR submission and Proposal of WESCO

3. ARR submission of WESCO ARR 2011-12 Projected Power purchase cost1414.86 Employee Cost362.7 A&G Cost38.4 R&M Cost50.21 Depreciation33.27 Bad Debts47.16 Interest & Finance charges62.34 Reasonable return7.78 Amortization of Regulatory Asset48.67 Truing up of Revenue Gap ( FY 2010-11)182.05 Contingency Reserve3.49 Total ARR2250.93 Sale of Power at existing tariff 1557.93 Other non tariff Revenue 20.58 Total Revenue Relisation 1557.93 Revenue Gap with existing Tariff 672.42 In Rs. Cr.

4. Prayer of WESCO The licensee requests the Hon’ble Commission to accept the proposal of ARR and bridge the revenue gap through combination of – grant/subsidy from the state govt., – reduction in BST and/or – increase in RST in appropriate manner.

5. Proposed Tariff Rationalisation Measures 1.Provision of 120% of CD for industry should be withdrawn 2.Delayed payment surcharge 3.KVAH billing for three phase LT & HT industrial consumers 4.Demand charges for consumers having contract demand more than 70KVA through HT supply 5.Payment of demand charges for CPPs 6.Discontinuance of load factor incentive in Energy Charges 7.Fixed charges for LT industrial (S & M), specified public purpose and public water works 8.Tariff for Medium Industries Consumers 9.Monthly Minimum Fixed Charges for consumers with contract demand < 110 kVA 10.Security deposit for providing meter and metering installations 11.Demand charges and monthly minimum fixed charges 12.Inspection fees of lines and substations 13.Billing of lift irrigation points

6. Analysis of ARR by Consumer Counsel

8. Revenue GAP of WESCO for FY 2011-12 (in Rs Cr)

9. Annual Revenue Requirement WESCO ( Cr) ARR 2010-11 Approved 2011-12 Projected % Change Power purchase cost 1359.181414.864.10 Employee Cost 166.73362.7117.54 A&G Cost 24.7938.454.90 R&M Cost 34.7750.2144.41 Depreciation 19.7233.2768.71 Bad Debts 20.8547.16126.19 Interest & Finance charges 33.7762.3484.60 Reasonable return 7.78 0.00 Amortization of Regulatory Asset 048.67 Truing up of Revenue Gap for FY 2010-11 0182.05 Less Expenses Capitalized -2.52 Contingency Reserve 03.49 Total ARR 1665.072250.9335.19 Observation: WESCO has proposed 35.19% hike in ARR for 2011-12

10. Computation of ACS of WESCO ParticularsUnitLicensee projection for FY 2011-12 Energy Purchase MU6500.00 Distribution loss%31.30 Collection Efficiency%98 Salable unitMU4466.18 Average cost of supplyPaisa / kWh 499.39 (at BSP 194 P/U) * As per data submitted by the licesee in the ARR

11. Submission on Cost Components of ARR

12. Power Purchase Cost Analysis Important Factors: 1.Utilization of proposed power 2.Demand forecasts 3.Distribution Loss 4.Collection Efficiency 5.AT & C Loss

13. Utilization of Purchased Power (FY 11-12) Observation: HT & EHT sale contribution is 43% Distribution loss ( 31%) is more than total LT sale (26%)

14. Demand Forecasting Sale/ Purchase FY 2010-11 (MU)FY 2011-12 Projection in ARR (MU) Projected in ARR Revised Estimates ( actual data of Six months) % Change (over Projected) LT15841333-15.851697 HT15631400-10.431350 EHT15041383-8.051419 Total Sale46514116-11.504466 Total Purchase65006244 -3.946500 Observation: Utilities demand forecast need to be checked. During FY 2011-12, total 11.53 lakh LT consumers are suppose to be added, still the reported total sale / purchase of power is nearly same. Incorrect estimation of energy will affect the drawl schedule of licensee as well as force GRIDCO for purchase costly power. ( projected dis loss, FY 2010-11 : 34.08%, 11-12 : 31.30

15. Distribution Loss (%) Approve d in ARR Approve d in BP Actual Audited / projected Performance Below BP 2007-08 25 36.1(11.1) 2008-09 25 33.6( 8.6 ) 2009-10 22.5 33.8( 11.3) 2010-11 19.9319.83 34.08 (p)? 2011-12 19.7 31.29 (p)? Observation: There is huge gap in projected (31.29%) and approved (19.7%) distribution loss. Further, trend of actual distribution loss is increasing. Licensee has made provision of Rs.10.40 Cr for SI in ARR as against the approval in BP of Rs. 12.50 Cr. Submission: Loss of revenue realization / higher energy purchase due to (11.59%, 753.35 MU, 163.95 Cr) higher distribution loss should not be allowed to passed on to consumer.

16. Collection Efficiency (%) Approved in ARR Approved in BP Actual Audited / proposed Performance 2007-08 96 92.9 --3.1 2008-09 96.6 93.9 - 2.7 2009-10 98 96 - 2 2010-11 98 ? 2011-12 99 98 ? Observation: Collection efficiency proposed is lower by 1 % than that of approved in BP. Gap between the approved and actual collection efficiency is widening. Utility need to take effective steps to further improve the collection efficiency. Submission: Loss of revenue realization due to 1% lesser collection efficiency (than that of approved in BP)should not be passed on to consumer.

17. AT & C Loss (%) Approved in ARR Approved in BP Actual Audited / proposed Performance 2007-08 28 40.7 +12.7 2008-09 27.527.5537.6 + 10.1 2009-10 2424.0536.4 + 12.4 2010-11 29.2721.53 ? 2011-12 20.5 32.60? Observations: Licensee has proposed 32.60% AT&C Loss. 96% Metering covered till Sept 2009. Low Agriculture Consumption. Possible reason for high AT &C Loss may be examined 1)Lower HT to LT ratio. 2)Poor Power factor 3)Aged transmission lines and poor jointing 4)Less energy Audits 5)Faulty meters and metering 6)Higher thefts One energy police stations is functioning out of proposed Nine. ( 3.81 cr prop in ARR)

18. Distribution Loss excluding EHT consumption FY 2009- 10 Actual FY2010-11 Proposed FY 2010-11 Revised Estimates FY 2011-12 Proposed Overall Distribution Loss 35.09%28.45%34.08%31.29% Distribution Loss Excluding EHT consumption 46.90%37.01%43.78%40.03% Distribution Loss Approved in BP 22.5%19.83%19.7% LT Distribution Loss Approved in ARR 29.4% Observation: Distribution loss in HT and LT level is much higher than the overall distribution loss (taking together LT, HT and EHT consumption) and approved distribution loss in BP. Submission: Utility needs to explore various measures to reduce LT and HT distribution loss. Further, faulty metering and power theft needs to be drastically reduced with the help of dedicated flying squad and energy police stations. Such energy police stations directly controlled by senior police officer attached to energy department could improve the efficiency.

19. ARR cost component – Employee Cost Observation: The utility has proposed the Employee cost of Rs 362.7 Cr in ARR with 117.54% hike from the earlier FY 2010-11 Employee Cost per unit of Energy Purchase (Paise/Unit) % Rise in FY 11-12 over FY 08-09 FY 08-09 (App)FY 09-10 (App)FY 10-11 (App)FY 11-12 (Prop) CESU30.7932.2334.8341.3434.27 SOUTHCO47.0445.6256.5799.12110.72 NESCO21.9626.6728.8159.88172.72 WESCO19.3621.6026.7055.80188.21

20. ARR cost component – A&G Cost Observation: Utility has proposed A&G expenses of Rs. 38.4 Cr for FY 2011-12 which are 54.9% higher than that of approved expenses for FY 2010-11. Submission: The Commission has approved A&G expenses of Rs 24.79 Cr in ARR for FY 2010-11. As per the LTTS order since it is a controllable cost, 7% escalation may be allowed on the approved value of 2010-11. In case of additional A&G cost claimed towards 9 energy police stations may be allowed A&G Cost (Paise/Unit) % Rise in FY 11-12 over FY 08-09 FY 08-09 (App)FY 09-10 (App)FY 10-11 (App)FY 11-12 (Prop) CESU4.964.775.597.6955.04 SOUTHCO6.516.847.5813.79111.94 NESCO3.123.683.347.11128.08 WESCO3.683.553.975.9160.48

21. ARR cost component – R&M Observation: Utility has proposed Rs. 50.21 Cr as R&M expenses. These expenses were projected as 5.4% of the opening GFA of Rs. 929.77 Cr. at the beginning of FY-2011-12 Submission: Utilities GFA approved by commission as on 31.03.2010 were 551.36 Cr. Utility has projected the GFA as Rs. 929.77 Cr. at the beginning of ensuring year. Which seems to be on higher side. Therefore Hon. Commission should scrutinize the new additional GFA (during Fy 10-11) and equivalent R&M be allowed to pass through in the ARR.

22. Truing up for 2010-11 Observation :  Licensee has projected the uncovered revenue gap of (- 37.36 Cr) as on FY 2009-10 based on audited accounts with licensee  Further based on the actual data of first half of the current year & estimate of second half (FY 10-11), the licensee has arrived at an uncovered gap of (- 182.05 Cr) for FY 10-11 & same is claimed & requested for truing up in the ARR of FY 2011-12 Submission  Hon Commission has carried out the updated truing up exercise (provisional) up to FY 2008-09 in the ARR of FY 2010-11 based on the audited accounts of WESCO and the performance standard outline in the Business Plan. At the end of FY 2008-09 the licensee has surplus gap 587.15 Cr.  Amount claim for truing up may not allowed to be pass through in the ARR before final truing up.

23. ARR cost component – Provision for Bad Debt Observation: Utility has proposed Rs 47.16 Cr as provision for Bad Debt by considering 98% collection efficiency as against 99% approved in BP. Submission: Provision of bad dept 1% (due to the 1% lower collection efficiency) should not be allowed to be passed on to consumer through ARR which accounts to Rs. 23.58 Cr.

24. ARR cost component-RoE Observation: As proposed equity capital is constant for the current and ensuring year. There is no equity capital infusion. Hence the Return on Equity should remain same as that of approved for FY 2010-11. Submission: Proposed RoE (Rs. 7.78 Cr) may be allowed to pass through in the ARR.

25. Per Unit Distribution Cost Per Unit Distribution Cost (Paise /Unit) % Rise in FY 10-11 over FY 09-10 % Rise in FY 11-12 over FY10-11 FY 09-10 (App)FY 10-11 (App)FY 11-12 (Prop) CESU61.9966.0783.956.5827.06 SOUTHCO80.1193.11165.6516.2377.92 NESCO53.2553.31108.740.11103.98 WESCO41.7748.9992.5917.3089.01

26. Tariff proposal – Other Issues

27. Consumer category Number of Consumers Position on (01.04.2010 ) Position as on 01.04.2011 Addition in FY 2010-11 % Increase (1/4/10 to 1/4/11) Proposed Addition during FY 2011-12 % Increase LT Domestic496936507112101762.0536163071% Kutir Jyoti <=30 kWh 94921142981048061104.15791676692% Total LT domestic 50642862141011498222.701153306185.60 Impact of BPL consumers Observation:  The growth of BPL consumers is increasing due to GoI / GoO rural electrification schemes : growth in FY 2010-11 ( 1104%) & anticipated in FY 2011-12 ( 692% ) as per submission in ARR.  It is predicted that the cumulative BPL consumer in Orissa will raise to 40 lakh by end of 2011-12, accordingly the BPL consumers in WESCOS area will further increase. Submission:  In above situation, it will be difficult to maintain the EHT, HT & LT tariff so as to keep the cross subsidy within (+ / - ) 20% of average cost of supply..  The OERC may recommend GoO to give upfront subsidy to DISCOM to cater the BPL consumer in the state.

28. Submission of Consumer Counsel Submission The Hon Commission may consider to create new LT category and impose higher tariff for a pplicability of Electricity used for the purpose of advertisements, hoardings and other noticeable consumption such as external flood light, displays, neon signs at departmental stores, malls, multiplexes, theatres, clubs, hotels and other such entertainment/leisure establishment Benefits. Improve the cash flow of DISCOM to some extent Help to adopt Energy conservation measures, the electricity otherwise wasted in unproductive purposes May opt for roof top SPV installation Example LT VIII category in MH, Fixed charge Rs 400 / month, Energy charge : Rs 16 /kWh

29. Submission of Consumer Counsel Energy demand projected by WESCO need to assessed once again based on projected growth of LT consumer Loss of revenue realization due to 1% lesser collection efficiency should not be allowed to pass through in ARR. Nominal DPS to LT consumers if allowed could help to improve the collection efficiency. The Utility has not taken any step to reduce distribution loss in the line of recommendations of the Kanungo Committee and OERC.. Utility needs to explore various measures to reduce LT and HT distribution loss. Faulty metering and power theft needs to be drastically reduced with the help of dedicated flying squad and energy police stations. Such energy police stations if directly controlled by senior police officer attached to energy department could improve the efficiency. Higher A&G expenses should not be allowed to pass through in the ARR. Higher R&M should not be allowed to pass through in the ARR. Rs. 23.58 Cr higher provision for bad debt should not be allowed to pass through in the ARR.. Licensee should make effort to collect arrears in order to reduce deficit. ARR can be reduced by increasing collection efficiency, reducing losses and measures suggested by consumer counsel in the submission.. Hon. Commission may kindly consider all above facts and decide the retail tariff in the best interest of all category of consumers.