SCO NO. 220-221, SECTOR 34-A,
Petition No.23 of 2009
Date of hearing: 03.03.2010
Date of Order: 16.4.2010
In the matter of: Review Petition against Tariff Order dated 8.9.2009 passed by the Commission for the year 2009-10.
AND
In the matter of: Punjab State Electricity Board, The
Mall,
Present: Shri Jai Singh Gill, Chairman
Shri Satpal Singh Pall, Member
For the petitioner Shri V.K.Bhatia, Chief Engineer/ARR & TR
Shri Rahul A.Marwaha, Director/TR(F)
Shri Arun Gupta, Sr. XEN
ORDER
Punjab State Electricity Board (Board) has filed this petition for review of the Tariff Order dated 8.9.2009 passed by the Commission for the year 2009-10. The petition was heard on 3.3.2010. The issues raised by the Board as contained in the petition and submissions made thereafter have been considered by the Commission and the same are decided as under:-
1. Return on Equity (ROE)
The Board has submitted that the Commission has approved Rs.412.46 crores as ROE for the year 2009-10 @ 14% of the paid up equity of Rs.2946.11 crores as on 1.4.2009. The Board has claimed ROE @ 15.5% (pre-tax) to be grossed up to 23.48% as provided in the CERC (Terms and Conditions of Tariff) Regulations (CERC Regulations). The PSERC (Terms and Conditions of Tariff) Regulations 2005 (PSERC Tariff Regulations) stipulate that CERC Regulations be followed ‘as far as possible’. The Commission notes that the Board has been unable to effect requisite improvements in critical performance parameters such as T&D losses and employee cost. Moreover, the Board continues to be a loss making entity and any increase in ROE may not for that reason alone be justified. For the aforementioned reasons, the Commission finds no justification to review the Tariff Order in this respect.
2. Thermal Generation
(a) The Board in its petition has stated that the Commission has assessed availability and generation for the year 2009-10 based on the average of actual availability and generation for the three years 2005-06 to 2007-08. It is further mentioned that the Commission has approved 19715 MU as gross thermal generation for 2009-10 as per Regulation 20 of the PSERC Tariff Regulations which provides that while determining the cost of generation of each thermal/gas/hydro electric generating stations located within the State, the Commission shall be guided as far as possible by the principles and methodologies of CERC as amended from time to time. In view of this, the Board has prayed that the Commission may review the plant availability factor allowed in the Tariff Order for FY 2009-10 and approve it as per prevailing CERC Tariff Regulations 2009 for GGSSTP Ropar and GHTP Lehra Mohabbat and incentive to those thermal stations should be considered by the Commission at 85% as per CERC norms.
The Commission has in the past been allowing the incentive/disincentive with reference to the generation approved for the year depending upon the annual maintenance schedules of the thermal plants as intimated by the Board in the ARR. On the other hand no penalty has ever been imposed on the Board if the plant availability factor of any plant was less than 85%. This practice has been consistently followed in all the Tariff Orders and accordingly the Commission holds that this is not an issue which can be agitated in review.
(b) In respect of GNDTP Bhatinda, the Board has urged that the Commission has computed the plant availability for FY 2009-10 at 81.37% which needs to be reviewed as the Board had projected 333 days of planned outage/maintenance schedules in the ARR Petition and on that basis plant availability comes to 77.19%.
The Board in its letter dated 16.4.2009 had intimated the revised maintenance schedule of GNDTP Units which envisaged major renovation and modernization work of Unit-4 from 1.10.2009 to 1.7.2010 (182 days during 2009-10) and shut down of Units 1, 2 and 3 for 30 days each on account of annual overhauling.. Based on this maintenance schedule for the year 2009-10, the availability of the plant has been correctly worked out as 81.37% and the Commission finds no occasion for a review in this respect.
(c) The Board has also stated that the Commission had approved 3542 MU as gross generation target for GHTP Stage I & II for FY 2007-08 in the suo motu Order of FY 2007-08 wherein generation targets for Stage 1 & Stage II were 3232 MU & 310 MU respectively. The Board has pointed out that gross generation finally achieved by GHTP Stage I was 3508.58 MU which was greater than its individual target by 276.58 MU whereas GHTP stage II could not achieve COD in FY 2007-08 and the Commission has computed gross generation of GHTP units as 34 MU below target in the Tariff Order FY 2009-10 and has penalized PSEB for non-achievement of COD of Stage II units for reasons that were beyond the control of the Board. The Board has prayed that as GHTP Stage I has overachieved the generation target and therefore, generation incentive should be allowed on 811.58 MU (501 MU + 34 MU + 276.58 MU) instead of 501 MU as computed in the Tariff Order FY 2009-10.
The Commission has been approving thermal generation compositely for all units in a generating station and is not inclined to consider incentives separately for Stage-1 and Stage-II of GHTP. It is, however, observed that the gross generation of GHTP for 2007-08 has been inadvertently reduced by 34 MU in the Tariff Order for 2009-10. In fact actual gross thermal generation of GHTP was higher by 101 MU as compared to the approved generation for that year. Accordingly, the Commission has decided to allow an incentive for higher generation to the extent of 135 MU gross and 123 MU net which would amount to Rs.24.16 crores.
3. Auxiliary Consumption of GNDTP Bathinda
The Board has stated that the Commission has fixed 10.22% as auxiliary consumption for GNDTP Unit 1, 2 after disallowing 0.83% on account of the three stage pumping and bearing cooling water system provided at Tanda Thermal Station and 0.95% on account of losses in generator transformer, unit auxiliary transformers, station transformer and excitation power. The Board has prayed that the Commission may allow 12% for auxiliary consumption without any disallowance for GNDTP Unit 1, 2 for the years 2008-09 and 2009-10.
The Commission had revised auxiliary consumption as 10.22% for GNDTP Units 1 & 2 for the year 2008-09 and 2009-10 in the Tariff Order for 2009-10 after reducing 1.78% (0.95%+0.83%) from the norm of 12% fixed by CERC for the Tanda Thermal Station. On re-examination, the Commission observes that it would be inappropriate to effect a deduction of 0.95% as this represents the losses in the generator transformer, unit auxiliary transformer, station transformer and excitation power which are theoretically occurring both in Bathinda and the Tanda Station. Thus, a deduction of 0.83% alone would be justified as that was the loss on account of the water cooling system that exists at Tanda but not in GNDTP. On that basis, auxiliary consumption for GNDTP Unit 1&2 would work out to 11.17 (10.22+0.95). However, the Commission finds no justification in allowing auxiliary consumption after R&M works of Units 1&2 which is in excess of the pre R&M value. Assuming that the auxiliary consumption in the case of Unit 1&2 is less than 11% and that for Unit 3&4 in excess thereof, the Commission compositely determines auxiliary consumption for all 4 units of GNDTP at 11% for the year 2008-09 and 2009-10.
4. Interest on working capital
The Board has submitted that the Commission had allowed working capital for the year 2009-10 as per provisions contained in the amended PSERC Tariff Regulations taking into account two months requirement of fuel cost and one month for power purchase, O&M costs and maintenance spares as per CERC norms. The Board has requested that the working capital and the interest thereon be also allowed for 2007-08 and 2008-09 as per amended PSERC Tariff Regulations taking into account two months fuel cost and one month power purchase, O&M cost and maintenance spares as per CERC norms as has been allowed for 2009-10.
The Commission notes that as amended Tariff Regulations came into force w.e.f. 31.7.2009, the date of their notification in the official gazette, there is no scope to apply the amended regulations with retrospective effect. In view of this, the Commission finds no merit in the submission of the Board.
5. Interest paid on Loans taken for Special
purpose vehicles (SPV)
In its petition, the Board has stated that the Commission had disallowed
interest paid on loans taken for SPV’s for 2007-08. It has further submitted that most of the
loans taken on behalf of SPV’s such as Talwandi Sabo Power Ltd (TSPL), Nabha Power
Ltd. (NPL) and Gidderbaha Power Ltd. (GPL), have been procured from financial
institutions like PFC and REC and these loans are being passed on to the
SPV’s. In addition, the Board also
provides loan to these SPV’s from its own resources/market. It has been further stated that interest income
of Rs.5,72,24,573 recovered from these SPV’s has been accounted for under
Account Code 62.280 forming a part of ‘other income’ of the Board for the year
2007-08. The Board has pleaded that since this interest income stands accounted
for in its non-tariff income, there was no reason to disallow interest paid by
the Board in raising the loans.
In order to verify the claim of the Board, an examination was made of Format 16 annexed to ARR for 2009-10 which details ‘Interest and Finance charges’. This format shows interest charges of Rs 1.16 crore on account of loans to TSPL. This amount was disallowed by the Commission as execution of TSPL was on Build Own Operate (BOO) basis and such outlays do not form a part of the Investment Plan of the Board. As there is no change in the factual position on this account, the Commission sees no reason to reconsider its decision on this issue.
The Board’s claim that recovery of interest income from TSPL and NPL is reflected in the non-tariff income has also been scrutinized and found wanting. The Commission observes that the matter needs to be examined with reference to Schedule 5 (Other Income) of the Statement of Accounts of the Board for the year 2007-08. Account Code 62.280 which is meant for accounting of interest income on fixed deposits and other investments of the Board depicts an amount of Rs.6,14,59,097 which forms part of total other income of the Board. The Board has now claimed that this amount is inclusive of recovery of interest income of Rs 5 crore from TSPL and Rs 0.72 crore from NPL for the year 2007-08. However, a perusal of Schedule 5 does not show any receipt of interest from TSPL and NPL. Moreover, Format-15 annexed to the ARR of the Board for the year 2009-10 makes no mention of any loan for Nabha Power Ltd (NPL) whereas the Board has claimed a recovery of interest of Rs 0.72 crore from NPL during the year 2007-08. On the other hand, Format 16 shows a recovery of an amount of Rs 5.72 crore on account of TSPL and NPL but does not indicate that this amount stands credited to non-tariff income of the Board. It is more than evident that the complete picture of loans raised on behalf of the SPVs, the interest paid/payable thereon and the recovery effected from these SPVs and credited into the accounts of the Board has not been made available and the Commission is inclined to conclude that there is insufficient documentary evidence to substantiate the claim of the Board. Accordingly, the Commission sees no reason to accept the plea of the Board.
6.
Interest on loans taken for non-refund of interest
The Board has stated that the Commission has disallowed loans taken because of non-refund of excess interest paid to GoP by observing that the matter is mutual to the Government and the Board. It has been indicated that financing of the liability on this account has reached Rs.782.72 crores as short term loans. The Board has prayed that the Commission may allow interest on short term loans taken to bridge this liability separately as has been done in the case of adjustment of Rs.1362 crores of subsidy in the Tariff Order of FY 2009-10 till the amount of Rs.782.72 crores is refunded by the Government.
The Commission observes that any GoP
liability on account of payment of subsidy and any other amounts that might be
due from GoP to the Board are clearly distinguishable and the Commission is
dealing with these two issues separately. The Commission has already observed
that the amount of interest paid in excess by the Board to the Government needs
to be refunded and it is now for the Board to take up the issue with GoP. The
Commission sees no reason to accept the Board’s plea in this respect.
7. T&D
Losses and AP Consumption
The Board has stated in the petition that the Commission has disallowed AP consumption by 11.25% in FY 2007-08 and 10.20% in FY 2008-09 and approved T&D losses as 22% for FY 2009-10 based on AP consumption study undertaken by ABPS. The Board has urged that in Tariff Order of FY 2009-10 the Commission has evaluated the revenue gap on the basis of 19.50% T&D losses for FY 2007-08 and FY 2008-09 and 22% for FY 2009-10 and also computed effective T&D losses as 25.12% and 24.07% for FY 2007-08 and FY 2008-09 respectively on the basis of reduced AP consumption. It is further stated that though the Commission reduced AP consumption for FY 2007-08 and FY 2008-09 it has not computed energy requirements as per revised T&D losses for these years. The Board has prayed that the Commission may allow revised T&D losses in true up of FY 2007-08 and review of FY 2008-09 as done for 2009-10.
The issue of T&D losses has been extensively discussed by the Commission in its previous Tariff Orders. Having determined losses to be 27.52% in 2001-02, the Commission projected a phased reduction in the next 6 years which, if achieved, would have brought such losses down to 19.5% in 2007-08. In the normal course, if the Board had been able to effect reasonable reductions in T&D losses as determined by the Commission, a further reduction trajectory was to be prescribed by the Commission from the year 2008-09 onwards. However, keeping in view the actual performance of the Board, the Commission was constrained to retain the T&D loss target of 19.5% in that year. There is no force in the plea of the Board that higher T&D loss figures should be taken into account because the Commission has reduced AP consumption in 2007-08 and 2008-09. The AP consumption as projected by the Board was in fact inflated on account of the reasons that have been clearly brought out in the study that was undertaken at the behest of the Commission. It is the considered view of the Commission that the inability of the Board to effect reduction in losses can not be a reason for penalizing the consumers by allowing higher T&D losses to the Board. Accordingly, the Commission finds no merit in this plea of the Board.
8.
Treatment of
Terminal Benefits in Employees Cost
The Board has submitted that while approving the employees cost at Rs.1856.60 crores, the Commission has disallowed the terminal benefits to the tune of Rs.256.76 crores out of the total of Rs.2113.36 crores held as allowable on this account. The Board has prayed that the Commission may allow the terminal benefits in full without any deferment.
The Commission observes that it had determined the employee cost of the Board as Rs.2113.36 crores in 2009-10 which includes the entire amount of terminal benefit to the extent of Rs.737.43 crores besides other employee expenses of Rs.1375.93 crores. The reasons for allowing lower employee cost of Rs.1856.60 crores are given in para 4.9.4 of the Tariff Order for 2009-10. From the time that the Commission passed its first Tariff Order in 2002-03, it has been consistently pointing out the high employee cost of the Board and the urgent necessity of addressing this issue through re-determining manpower norms and requirements. The Commission is, in fact, distressed to observe that notwithstanding such observations, the Board has yet to take a final call in this respect. It is for this glaring omission on the part of the Board that the Commission has been constrained to disallow a sum of Rs.100 crore from the employee cost till such time as the Board takes requisite action towards right sizing its employee strength. The Commission sees no reason to give any relief to the Board on this account.
9. Station Heat Rate for GGSSTP Ropar
The Board has stated in the petition that the Commission has taken station heat rate for GGSSTP Ropar at 2500 Kcal/Kwh for the years 2007-08, 2008-09 and 2009-10 and further observed that two of the six units in the Thermal Station are around 25 years old and with ageing of equipments, the performance is bound to deteriorate. It is further urged that average ageing for the turbines of six units, as on 30.9.2009 was 14.89% and that on that basis, the derated value of the design turbine heat rate was computed as per BHEL’s formula would come to 1985 Kcal/Kwh. It is mentioned that considering designed boiler efficiency as 87.16%, the station heat rate of GGSSTP works out to be 2622.68 Kcal/Kwh. However, over time, the efficiencies of the boiler and other plant assemblies is bound to decrease from their designed values and thus SHR of 2700 Kcal/Kwh is a more realistic assessment which should be taken into account in the years 2007-08, 2008-09 and 2009-10. It is further prayed by the Board that the Commission may carry out an independent assessment by consultants or an outside agency for determination of performance parameters for GGSSTP.
The Commission notes that in para 4.4 of its Tariff Order for 2009-10, it had observed that CERC determines technical standards and operational norms of coal fired stations based, by and large, on CEA’s recommendations. Considering the wider implications of operational norms for the power sector as a whole, CEA had in Dec. 2003 constituted an expert committee with representatives from central utilities, state generating companies, equipment manufacturers and consultants. With a view to ensuring that the inputs of major stake holders are taken into account while determining these norms, this committee had, as a part of its deliberations, obtained and considered data of several generating plants including those of the Board. In addition, some NTPC stations and other utilities were also inspected with a view to ascertaining the methodology on the basis of which data was being provided. This committee then recommended operational norms for units ranging in size from 210 MW to 500 MW which have, by and large, been adopted by CERC. CEA had also inter alia observed that deviation of operating heat rate showed no correlation to age or make of the unit and that old units from some of the utilities have showed very low deviation. Moreover, CERC norms apply to all central generating stations irrespective of age. In the light of the above, the Commission is not convinced of the need for undertaking another study and is inclined to go by CERC norms that have been adopted on the basis of a detailed study undertaken of plants similar in most respects to those of the Board. Accordingly, there is no scope of a review on this account.
10. Additional UI Surcharge on Overdrawal of Power
The Board has brought out that the Commission, in line with
the recommendations of the Parliamentary Standing Committee on Energy, has
decided in the Tariff Order for 2009-10 that additional UI payable when power
is drawn at a frequency less than 49.2 Hz will not be allowed. In doing so,
however, no consideration has been given to the overflow factor which would
inevitably be there till such time as power control measures are implemented
with a view to improving the frequency.
The Commission notes that the disallowance of
additional UI charges has been based on the recommendations of the
Parliamentary Standing Committee on
Energy, Forum of Regulators and is also a part of the UI Regulations of CERC.
In no case has any provision been made for the overflow factor. Moreover, the Commission
observes that it should be possible for the Board to take adequate and timely
demand control measures so as to ensure that no power is overdrawn when the frequency of the grid falls below 49.2 Hz. In these circumstances, the Commission does
not find any force in this plea of the Board.
11. Treatment of notes to accounts in true-up
of FY 2007-08
The Board has stated that the Commission has made adjustments in Audited
numbers for 2007-08 by incorporating the information given in ‘Notes to
Accounts’ in the Annual Audited Statement of Accounts for 2007-08. It has
stated that such notes are normally addressed in the accounts of the next year
and thus any adjustments carried out in the True-up of 2007-08 might have been
addressed again in Accounts for the year 2008-09. The Board has, therefore
requested the Commission to review these adjustments made in the Tariff Order
& revisit its decision in this regard.
The Commission observes that the Board has not raised any specific
objection with regard to adjustments carried out by the Commission on the basis
of the Audit Notes. However, the basic issue to be addressed is whether or not
the Commission should take cognizance of Audit Notes while finalizing the true
up for any particular year. The Commission is of the view that the true up
represents the final accepted figures for a specific head of account for the
relevant year and thereafter the Commission would have no occasion to revisit
any of the amounts so determined. In such a situation, it becomes incumbent
upon the Commission to take all Audit Notes into account that have a direct
bearing on determination of any element of cost. The audit report is available
with the Board well before the filing of the ARR and it should not be
impossible to offer comments in the ARR itself in case any of the Audit Notes
are sought to be disputed or settled otherwise by the Board. Notwithstanding
the position as brought out above, the Commission observes that Audit Notes
taken into account by the Commission in the true up of 2007-08 in Tariff Order
2009-10 have actually resulted in allowing additional expenses to the Board as
given in the table below:
|
|
Audit Notes |
Impact of the Audit Notes (Rs. crore) |
Additional expenses allowed to
PSEB (Rs. crore) |
|
2.10.2 |
Understatement
of employee cost |
6.46 |
No impact since employee cost
is capped |
|
2.11.2 |
i)Understatement of R & M
Cost. 1.19 ii) Overstatement of R&M
cost 0.31 iii) Assets understated 4.27 iv) Capex booked as Exp. 0.31 v) Assets overstated 1.19
------
3.39 |
0.88 0.06 0.94 |
0.94 |
|
2.12.2 |
i) Understatement of A& G
exp. 0.21 ii)Effect on Assets 3.39 |
No impact 0.01 |
0.01 |
|
2.14.11 |
i) NFA understated 3.39 ii)WIP overstated(189.74+4.27)
194.01
---------
190.62 |
Diversion increased by 190.62 |
Interest disallowed increased
by 23.29 (of the GoP) |
|
2.18 |
Revenue overstated 1.06 |
Gap increased by 1.06 |
1.06 |
|
2.19 |
Other debit understated 17.05 |
Expenses increased by 17.05 |
17.05 |
|
|
Total additional expenses allowed on account
of Audit Notes |
|
19.06 |
In these circumstances, the Commission finds no merit in the plea of the Board to reopen this issue in review.
The petition is disposed of accordingly.
Sd/- Sd/-
(Satpal Singh Pall) (Jai Singh Gill)
Member Chairman
Dated: 16.4.2010