PUNJAB STATE ELECTRICITY REGULATORY COMMISSION

SCO NO. 220-221, SECTOR 34-A, CHANDIGARH.

 

Petition No. 4 of 2004.

Date of hearing : March 31, 2004.

Date of order :6.4.2004.

 

In the matter of :         ARR & Tariff Application of Punjab State Electricity Board for the FY 2004-05  --  Application filed by the PSEB for withdrawal of ARR & Tariff Application.

 

AND

 

 

In the matter of :         Punjab State Electricity Board.

 

 

Present:                       Sh. R.S.Mann, Chairman.

                                    Sh. L.S.Deol, Member

                       

 

For the PSEB:                         Sh. H.C. Sood,  EIC/ Commercial.

                                                Sh. B.D.Bansal, Director/ Sales.

                                               

For CII:                                   Sh.S.P.Oswal, Ex-President, Punjab State Council, CII.

 

ORDER:

 

1.         The Punjab State Electricity Board filed its ARR and Tariff Revision Application for the year 2004-05 on December 8, 2003. After removal of the deficiencies by the Board as brought out by the Commission in its various references,  the same was taken on record of the Commission on February 17, 2004. The approval of the Commission for publication of a public notice for inviting objections from public on the petition was conveyed to the Board on February 23, 2004.

           

2.   On the directions of the Government as contained in its D.O. letter No. 11/122/03-PE(S)/2497 dated  23.2.2004, the Board has  filed an Application on February 27, 2004 seeking withdrawal of ARR and Tariff  Revision Application for the year 2004-05.  The following prayers have been made by the Board in its application:-

a)     In view of the peculiar and exceptional circumstances and one time restructuring efforts of the Board being underway, the Board may be allowed to withdraw the ARR and Tariff Revision Application for the year 2004-05 and it may be exempted from getting the public notice published.

b)    PSEB may be  permitted to file revised ARR and Tariff Revision Application as soon as the details of unfunded liabilities to meet with the pensionary benefits etc. are available with the Utility, the effect of which is proposed to be factored into the ARR for the year 2004-05 and shall be applicable to unbundled entities of composite PSEB.

c)     The validity of the existing tariff be extended beyond March 31, 2004 till the new Tariff proposals are finalized by the Commission on the basis of fresh ARR to be filed by the Board.

d)    The Commission may also allow through appropriate changes in tariffs, the recovery of the revised revenue gap including recognition of the unfunded pensionary liability, settlement of dues and receivables with the State Government etc. as to be determined at the time of filing of the  revised ARR and Tariff Application for the year 2004-05.

 

3.   The application was decided to be heard on March 22, 2004. The Commission later also received a representation from Sh. S.P.Oswal, Immediate Past President of Confederation of Indian Industry, Northern Region, requesting for hearing as and when the request of the Board for withdrawal of ARR and Tariff Revision Application is considered by the Commission.  The representation also stated that the industrial consumers were expecting a significant reduction in the tariff rates in the coming year in view of the directives of the Commission issued to the Board and State Government in earlier years.   Now by withdrawal of ARR, the PSEB is wishing to hold on to the higher rates of tariff for industrial consumers which will be unjustified.  It was further stated that in case  the Board wants to withdraw the ARR, the tariff rates need to be restored to the levels existing before setting up of the Commission till the time financial restructuring is undertaken. It was also stated that the Commission had already given reasonable  time to the State Government and the Board to undertake financial restructuring but no concrete steps have been undertaken either by the State Government or the Board in this regard.

     

4.   The representation of Sh. Oswal was considered by the Commission in its hearing on March 22, 2004 and in view of the fact that the industrial consumers are also a party directly affected by the withdrawal of the ARR And Tariff Application, the Commission agreed to hear Sh. S.P.Oswal.

     

5.   The petition was heard on March 31, 2004. The representatives of the Board submitted supplementary affidavit and also stated that the Government and the Board are undertaking exercise of restructuring and unbundling of the Board as mandated  under the Electricity Act, 2003.  As a result of this exercise, the Board may undergo structural change and new successor entities will come into being during the financial year 2004-05. Once the transfer scheme is approved by the Government, the Board will be in position to know the exact constitution of the new entities.  In that case, filing of separate ARR & Tariff Application by each of the successor entities separately may be required in view of the provisions of the Act.  Further, the financial restructuring plan may also involve substantial change in the position of a number of items presently exhibited in the balance-sheet of the Board.  The FRP transfer scheme and determination of other pre-requisites for such transfer scheme will be developed by 3rd week of May and therefore the Board has requested for withdrawal of ARR & Tariff Application in view of the extra-ordinary circumstances involved.  The Board also confirmed that it shall file revised  & updated ARRs.& Tariff petitions for the financial year 2004-05 including yearly liabilities in the revenue expenditure on account of past unfunded liabilities relating to pensionary benefits, settlement of various receivable/ payable between the State Government and PSEB by or before the end of May, 2004.   It was further prayed that the present tariff structure be allowed to be continued for atleast another six months i.e. till September 30, 2004 as a situation of vacuum in tariff structure was inconceivable. Further, the Board requested that the revenue gap as determined on the basis of revised ARR be allowed to the Board through annualisation of tariff in the remaining part of the year.

6.   Sh. S.P.Oswal reiterated his stand taken in the representation.  He further stated that a number of industrial units are getting sick due to the competition in the market and the units are closing down.  Unjustified high power tariff is one of the reasons for high cost of production and inability to compete in the market for the industries in Punjab.  This was partially due to physical factor of location of Punjab being distant from the coal sources but also due to inefficiencies of the Board and discriminatory policies of the Government.  He showed resentment over the proposal of the Board for withdrawal of ARR as according to him, this implied continuance of present tariff structure for some more time. As against this, industry was expecting some relief under the new tariff structure in view of the mandatory requirement of Electricity Act, 2003 for bringing tariffs nearer to the average cost of supply as well as the fact that real cost of supply for the industrial consumers was already much lower than even overall average cost of supply.  He further stated that restructuring should not come in the way of determination of tariff separately for different functions of the Board namely generation, transmission and distribution and that these separate tariffs could come into operation from the date the new entities started operating separately.  According to him, in any case, the distribution tariff will not be affected by the restructuring exercise.  He also stated that the Government is not taking concrete steps for restructuring and revaluation of Ranjit Sagar Dam. The consumers should, however, not be adversely affected on this account.

     

7.   The Commission has considered the mandatory provisions of the Electricity Act 2003 and the Regulations made thereunder. The position brought out by the Board and Sh.Oswal has also been considered. It is true that the Act does not specifically provide for annual submission of ARR and Tariff Application by the Utility.  However, the general intent of the Act is very clearly for determination of tariff with reference to the cost of service of the Utility and this obviously involves determination of Annual Revenue Requirement each year. Further, Regulation 4(1) of Tariff Regulations framed by the Commission under the Electricity Regulatory Commissions Act,1998 clearly provides for submission of ARR each year by the Utility.  In any case, non-submission of ARR by the Utility cannot be accepted in the ordinary course as in that case the Utility expecting downward revision in tariff will always like to resort to such a course of action thereby denying the consumers their justified and due benefits.  On the other hand, unbundling of the Board is a one time exercise and it may  put undue and extra burden on the Board and the Government. This also involves financial restructuring which requires many fundamental issues to be sorted out as a one time measure.  In view of the extraordinary circumstances, it is not inappropriate to allow extra time to the Board for filing its ARR and Tariff Application as requested by them.  However, some restrictions need to be put in place to ensure that the Board keeps its commitment about submission of revised ARR and also to ensure that the consumer interests are safeguarded.  Further, the Commission noted that under the Act, a separate transmission utility to be known as State Transmission Utility (STU) has to be constituted latest by June 9, 2004 and the separate transmission utility so constituted can not engage in the business of trading in electricity under Section 39 of the Act. The Board is presently engaged in the business of trading as it makes bulk purchases to distribute the electricity so purchased.  Thus, under the Act, it is mandatory for the Board to segregate its transmission activity from its other activities after June 9, 2004.  This means that for major portion covering about 10 months of the financial year, the Utility will no longer be one entity but atleast two entities.  In such a case, it is not appropriate for the Commission to proceed with the ARR & Tariff Application of the unified entity. It will be more appropriate if the ARRs. & Tariff Applications for different entites to be created as per the Act are separately projected and processed.

 

8.   In view of all above, the Board is directed to file its ARRs. and Tariff Applications keeping the above observations in mind and separating the transmission business from other  businesses of the  Board as required under the Act.

 

9.   It is, therefore, decided as follows:-

(a)   The Board is allowed to withdraw the ARR & Tariff Application already filed by it and to file the new ARRs. and Tariff Revision Applications for the financial year 2004-05 latest by 31st May, 2004 unless the dead line is extended  by the Commission for exceptional reasons.  The Commission has noted that the Board itself has committed for filing of revised ARRs. and Tariff Applications by May 31, 2004 only.

(b)  The present tariff structure shall continue till September 30, 2004 or the date of implementation of fresh tariffs to be decided by the Commission, whichever is earlier. Date of September 30, 2004 has been fixed keeping in view the fact that four months is the minimum period required by the Commission for processing the ARRs. and Tariff Applications.  This period can not be curtailed further in view of the fact that the ARRs. and Tariff Applications for the year 2004-05 may be filed separately for separate entities after unbundling of the Board and will also involve items of cost towards restructuring which will need in-depth study relating to their principles, determination of their magnitude and consideration for their inclusion in the ARR.  Further the normal procedure for determination of tariff which includes inviting objections from public giving them 30 days notice as well as public hearing and validation of data of the Board will also have to be observed.

(c)   In case the Board fails to file its ARRs. & Tariff Applications by the due date as indicated above, and if this results in delaying the Commission’s orders on the ARRs. & Tariff Applications beyond September 30, 2004, the Commission may, while allowing continuation of present tariff structure beyond September 30, 2004, reduce the present tariff for any category/ categories of consumers till such time as new tariffs are decided by the Commission for all the categories.

(d)  The Board shall file new ARRs and Tariff Applications for different entities separately  keeping in view the requirements of the Act on the matter.

(e)   The matter regarding the prayer of the Board for annualisation of the tariff shall be decided by the Commission at the time of determination of Tariff based on new ARRs. & Tariff Applications filed by the Board or by its successor entities.

 

 

    Sd/-                                                              Sd/-

 

(L.S.Deol)                                                       (R.S.Mann)

  Member                                                          Chairman

 

 

Place: Chandigarh.

Dated: 6.4.2004