Chapter-5
Summary of Annual Revenue Requirement and Proposed Tariff for the year 2004-05

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2004-05 SUMMARY

5.1 The Punjab State Electricity Board (PSEB) has filed its Revenue Requirement for the year 2004-05 for the consolidated business of PSEB, which also indicates separately the revenue requirements of the Generation and Distribution, Transmission and System Operations functions. PSEB has projected aggregate revenue requirement for an amount of Rs. 8187 crores. This covers the total expenses of Rs. 7974 crores and return of Rs. 213 crore on net fixed assets (3% on net fixed assets). The expected revenue projected at the current tariff rates is Rs. 7070 crores and non-tariff income at Rs. 330 crores thus forecasting a revenue gap of Rs. 787 crores. A summary of Annual Revenue Requirement as filed by PSEB is given below in Table 5.1.
Table 5.1 >

Sr. No.	Item	Total Business FY 04-05 (P)	Generation & Distribution FY 04-05 (P)	Transmi-ssion FY 04-05 (P)	System Operation FY 04-05 (P)
1	Generation expenses	1911	1911	0	0
2	Power Purchase expenses	2314	2303	0	11
3	Employees Cost*	1775	1572	178
4	Interest charges*	1011	898	111	2
5	O&M Expenses*	243	216	27	0
6	A&G Expenses *	50	36	13	1
7	Depreciation charges*	576	491	83	2
8	Amortisation of Regulatory Asset alongwith carrying cost	94	94
9	Net Expenditure	7974	7521	411	42
10	Add: Reasonable return	213	164	48	1
11	Total Revenue Requirement	8187	7685	459	43
12	Less non-tariff income	330	309	21	0
13	Net Revenue Requirement	7857	7376	438	43
14	Less Subsidy	0	----	----	----
15	Less Revenue at Current tariff	7070	----	----	----
16	Net Revenue Gap	787	----	----	----

* Net of capitalization

The major items of expenses are Generation [Fuel] cost (24%), power purchase (29%), establishment costs (22%) and interest charges (13%).

5.2 ENERGY PROJECTIONS

PSEB in its ARR has given the projected energy sales and energy availability for the year 2004-05 as follows:

Sl. No.	Category of Consumers	Projected Energy Sales
1	Domestic	5553
2	Non-Residential	1344
3	Small power	738
4	Medium Supply	1500
5	Large supply	6902
6	Agriculture	6472
7	Pubic lighting	117
8	Bulk Supply and Railway traction	513
9	Total Sales in the State	23139



Energy Available


(a) Generation
(i) Gross Generation
• Hydro
- Own generation	3879
- BBMB (including 381 MU as share of common pool consumers)	4374
• Thermal	13720
Total	21973
(ii) Auxiliary consumption (1325+13)	(1338)
(iii) Net generation	20635
(b) Power Purchases (Net)	10728
(c) Total energy available.	31363
(d) Less
(i) Common pool sales.	381
(i) Outside State sales.	426
(i) Outside state (Royalty and share to HP)	110
(e) Energy available for sale within the State (c-d).	30446
(f) T&D loss at 24%.	7307
(g) Estimated energy sales in the State (e-f)	23139

5.3 PROPOSED TARIFFS

5.3.1 Revision of Retail Tariffs

a) Existing and Proposed Tariffs

The PSEB has filed tariff proposals for increase in the existing tariffs to meet the Revenue Requirement for the year 2004-05. The existing and proposed tariff rates are given in Annexure I to this Chapter.

The Board has proposed tariff increases for the various categories of consumers to capture an amount of Rs. 392 crores assuming applicability of the revised tariff for the full year. As the revised ARRs/TA have been filed by the PSEB on May 31, 2004, the Tariff Order is likely to be issued only by September – October, 2004. Therefore, the Board has proposed that the tariffs may be annualized suitably by the Commission to capture this amount in the remaining months.

Domestic consumers belonging to SC category with connected load upto 300 watts are proposed to be given 50 units of free power per month in view of Government subsidy.

All other charges which are being collected by the Board as per the ‘Sales Regulations for Supply of Energy to Consumers’ are proposed to be continued at the existing rates.

b) Salient Features of Proposed Tariff
i) For domestic category, an additional lifeline tariff slab is proposed for the first 50 units of consumption and tariffs in the slab are proposed to be maintained unchanged at present levels.

ii) The threshold for power factor penalty for large supply consumers, medium supply consumers and railway traction has been proposed to be changed from 0.88 to 0.90.

iii) PSEB has proposed to introduce an incentive framework for LS, MS and railway traction consumers who maintain higher power factor.

iv) For MS category in place of existing capacitor surcharge, it has been proposed to introduce penalty for low power factor and incentive for high power factor in line with LS category.

v) Two part tariff has been proposed for LS category and railway traction.

vi) In LS category the consumers in the Arc Furnace category are proposed to be merged with Power Intensive Units (PIU) consumers.

vii) In recognition of the lower cost of service at higher voltages, the voltage rebates on energy charges have been proposed to be raised to 6% from the present level of 3% for supply at 33 KV and above.

viii) The overall realization from railway traction category is proposed to be reduced from Rs. 4.47 per unit at present to an estimated of Rs. 3.78 per unit to make PSEB supply attractive for the railways.

ix) No change in the Tariff has been proposed for Public Lighting and Bulk Supply categories.
c) Revenue from Existing and Proposed Tariff Rates

The Board has projected the following revenue from various consumer categories with reference to existing and proposed tariffs as given below in Table 5.2. Table 5.2
Revenue from existing and proposed tariff rates

Consumer category	Annual consumption (MU)	Revenue from (Rs. Crore)		Average billing rate (Ps/kwh)
		Existing Tariff	Proposed Tariff	Existing Tariff	Proposed Tariff
Domestic	5553	1478.74	1633.20	266.29	294.11
Non-residential supply	1344	606.46	618.46	451.16	460.09
Small power	738	245.60	272.89	332.79	369.77
Medium supply	1500	552.60	580.57	368.31	386.94
Large supply	6902	2596.54	2715.19	376.20	393.39
Public lighting	117	48.88	48.88	417.00	417.00
Bulk supply	437	166.19	166.19	380.04	380.04
Railway Traction	72	32.33	27.32	447.00	377.74
Sub total metered sales within State	16665	5727.35	6062.71	343.69	363.81
Agriculture	6472	1154.44	1210.76	178.37	187.08
Common pool	381	90.37	90.37	237.45	237.45
Outside State (Banking)	426	97.48	97.48	228.72	228.72
Grand Total	23943	7069.64	7461.31	295.27	311.62



The Board has worked out additional revenue requirement of Rs. 787 crores for the year 2004-05. The Board has also assessed the additional revenue requirement of Rs. 68 crores for the year 2003-04. In its Tariff Application for the year 2004-05, the Board has proposed to capture only about Rs. 392 crores out of total additional revenue requirement of Rs. 787 crores for the year 2004-05 through tariff increase and remaining gap for the year 2004-05 (if any) as determined by the Commission and the revenue gap of Rs. 68 crores for the FY 2003-04 has been proposed to be carried forward as Regulatory Asset.

5.3.2 Charges for Transmission and System Operations

The Board has proposed to recover charges for transmission and system operations from the distribution business on a monthly basis as follows :-

Function	Charges to be recovered (Rs. Cr/Month)
Transmission	36.58
System Operation	3.58

2003-04 REVIEW

PSEB has stated that Board has witnessed positive trends in sales and revenues. However, it is mentioned that positive trends have been offset by the increase in the costs of the Board and PSEB has projected the revenue gap at Rs. 68 crore in the pre-actuals for 2003-04. The key heads where costs have varied with the order of the Commission are as follows:-
• Employee costs are higher by about Rs. 145 crores due to the cost recognition issues.

• Power generation costs are higher by about Rs. 112 crores due to computations of the Commission for the station operating parameters (plant load factor, transit loss, station heat rates) on a normative basis as against the performance based on actual basis.

• Power purchase costs are lower than the levels in the orders of the Commission by about Rs. 229 crore due to judicious purchases by the Board and the effective utilization of the ABT mechanism.

• Interests costs are higher by Rs. 145 crores. The increase is partly due to disallowances made by the Commission in the Order and partly on account of variations in the rate and the sources.

• Depreciation has come down by Rs. 135 crores.

• Administrative and general expenses increased by Rs. 6 crores.

• O&M costs are lower by Rs. 46 crores.

• Revenue from sales to consumers are lower by about Rs. 75 crores primarily on account of the lower consumption in large supply to the tune of about 378 MU.
PSEB has proposed that the expected shortfall of Rs. 68 crores in 2003-04 may be carried forward as a “Regulatory Asset”.

The performance of the PSEB for the year 2003-04 is analyzed in Chapter 3 of this Tariff Order.

2002-03 TRUE UP

PSEB has given actual Aggregate Revenue Requirement and Revenue for the year 2002-03 and has indicated a Revenue gap of Rs. 608 crores. True up for the year 2002-03 is discussed in Chapter-2 of this Tariff Order.

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