Chapter-2

True - up for the year 2002-03

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2.1         The Commission had approved the Annual Revenue Requirement and the tariffs for the year 2002-03 in its order dated September 6, 2002. In this order, the Commission spelt out the principles, norms and the approach to be followed. The order was further based on the projections/information supplied by the Board and Commission’s own analysis regarding anticipated costs, demand, sales, revenues etc. When the Board submitted its ARR application for the next year, 2003-04, it included the revised ARR for the previous year, that is, the year 2002-03. During the course of hearing by the Commission and other connected exercises for deciding the ARR for the year 2003-04, the Board supplied fresh figures as “pre-actuals” for the year 2002-03. Based on all this, while passing the tariff order for the year 2003-04, the Commission revised its previous orders with regard to the ARR for the year 2002-03. Along with its application for determining the ARR for the year 2004-05, the Board has supplied audited figures for the year 2002-03. The audited figures show significant variations as compared to the figures earlier adopted by the Commission in its revised order for that year. It would be thus seen that for the year 2002-03, there are four sets of data on the record. The Commission holds the clear view that it is in the interest of all the stakeholders that the final truing up should be done only on the basis of actual figures, even though the principles and the norms adopted earlier should not be altered. Accordingly, the Commission has decided that this practice will be followed invariably in future.

A.       ENERGY DEMAND, AVAILABILITY AND BALANCE

2.2       ENERGY DEMAND (SALES) FOR THE YEAR 2002-03

The sales projected by PSEB in the ARR 2002-03, sales approved by the Commission in the tariff order for FY 2002-03, revised estimates by the Board in the ARR for FY 2003-04, actuals for 2002-03 furnished by the Board during course of issue of tariff order for the year 2003-04 and accepted as such by the Commission and audited sale figures given by PSEB in ARR for 2004-05 are given in Table 2.1 below.

Table 2.1
Energy Sales for 2002-03



SI No.	Category	2002-03
		Proposed by PSEB in ARR 2002-03	Approved by Commission in T.O. 2002-03	Revised Estimated Sales by PSEB as shown in ARR 2003-04	Actual furnished by PSEB during the course of T.O. 2003-04 & approved by the Commission	Audited figure furnished by PSEB in ARR 2004-05
1.	Domestic	4917	4917	4902	4787	4913
2.	Non-Residential	1111	1111	1133	1125	1204
3.	Public Lighting	88	88	75	85	89
4.	Agriculture	5986	5235	6150	5818	5820
5.	Small Power	764	764	643	620	642
6.	Medium Supply	1379	1379	1437	1486	1474
7.	Large Supply	7232	7232	6260	6217	6405
8.	Bulk Supply	450	450	350	426	418
9.	Total sales within the State	21927	21176	20950	20564	20965
10.	Metered sales(9-4)	15941	15941	14800	14746	15145
11.	Common Pool	340	340	340	340	368
12.	Outside State sales	360	360	467	482	482
13.	Total (9+11+12)	22627	21876	21757	21386	21815



The actual sales for the year 2002-03 furnished by PSEB during the course of T.O. for the year 2003-04 were discussed in the Tariff Order for FY 2003-04.The consumption recorded by large supply power consumers during the year 2002-03 was not considered as normal year consumption. It was established that there was diversion from large supply power consumers to agriculture to meet the increase in agricultural demand due to delay / failure of monsoon during FY 2002-03. This diversion was stated to be due to the instructions of the State Government. The Commission had, therefore, accepted the diversion of 480 MU from LS category to meet the agricultural demand as intimated by PSEB.

The Commission notes that the energy sales figure within the State for the year 2002-03 now depicted by the Board in its ARR for 2004-05 is 401 MUs more than the actual sales figure for the year furnished by the Board during processing of the Tariff Order for the year 2003-04. The main increases are in domestic category (126 MUs), LS category (188 MUs), NRS (79 MUs) and Small Power (22 MUs). The consumption in agriculture is more or less at the same level as last approved by the Commission. There is an increase of only 2 MUs under AP which is negligible. The agricultural consumption level approved by the Commission is of course after taking into account the diversion of 480 MUs approved by the Commission during Review of Tariff Order for the year 2002-03. Taking into consideration the facts that the actual sales are at the level depicted in the ARR for 2004-05 and also the fact that the consumption for agricultural sector is at the level approved by the Commission as well as the fact that the consumption in other categories is also by and large at the level approved by the Commission except higher sales in certain categories, the Commission accepts the audited sales figure as in Table 2.1 as the final sales figure and approves the same for the purpose of truing up exercise for the year 2002-03.

2.3       AGRICULTURAL CONSUMPTION

In its tariff order for the year 2002-03, the Commission had decided that for working out the aggregate agricultural consumption, a norm of 1700 kwh/kw/year should be adopted. Taking into account the connected load figure provided by the Board, the Commission had determined the aggregate agricultural consumption at 5235 MUs on a connected load of 3079396 KW. In its ARR filing for the year 2003-04, the Board provided revised estimates for the connected load and aggregate consumption as 3224005 KW and 6150 MUs respectively. During the course of the proceedings conducted for the tariff order for the year 2003-04, the Board provided the actual figures of connected load as 3293991 KW and the aggregate consumption as 5818 MUs for the year 2002-03. Even though the aggregate consumption figure of 5818 MUs would give the norm of agricultural consumption of 1766 kwh/kw/year, the Commission decided to accept all these figures since it was generally believed that during the paddy season of the year 2002-03, there was a partial failure of monsoons and thus higher quantum of energy had to be provided for agricultural users. Working on a connected load of 3293991 KW as on 31.3.2003 and adopting the norm of 1700 kwh/kw/year, the aggregate consumption would have been determined at 5600 MUs. As per the figures provided by the Board along with the ARR for 2004-05, the actual agricultural consumption for the year 2002-03 was 5820 MUs, out of which 5600 MUs conformed to the normal requirements of the agricultural sector and the balance of 220 MUs was taken to have been diverted from other consumers to the agricultural sector in order to meet the abnormal conditions created by a poor monsoon.Adopting these figures as the actual ones, the Commission approves the level of diversion from LS consumers to agriculture at 220 MUs as against the figure of 480 MUs decided by the Commission in the tariff order for the year 2003-04. This change is also supported by the fact that actual consumption for LS category showed an increase of 188 MUs, as per the actual figures now provided by the Board, over the level approved by the Commission while allowing for a diversion of 480 MUs.

2.4       PSEB’S OWN GENERATION

2.4.1       Thermal

The station wise generation projected by PSEB in the ARR 2002-03, generation approved by the Commission in Tariff Order for 2002-03, revised estimates by PSEB in ARR 2003-04, actuals furnished by PSEB during the course of Tariff Order for FY- 2003-04 and actuals furnished by PSEB in ARR 2004-05 is given below in Table 2.2.

Table 2.2
Station-wise Generation 2002-03



SI NO.	Station	Projected by PSEB in ARR 2002-2003		Generation Approved by the Commission in T.O. 2002-2003		Revised estimates by PSEB in ARR 2002-2003		Actuals for 2002-2003 furnished by PSEB during the course of T.O. 2003-2004		Actuals by PSEB in ARR 04-05
		Gross	Net	Gross	Net	Gross	Net	Gross	Net	Gross	Net
1	GNDTP	2350	2124	2650	2395	2526	2283	2499	2266	2499	2266
2	GGSTP	8500	7820	8830	8124	8415	7741	8246	7565	8245	7564
3	GHTP	3100	2824	3100	2824	2834	2581	2906	2646	2906	2646
	Total	13950	12768	14580	13343	13775	12605	13651	12477	13650	12476



The short fall of 929 MUs in gross generation furnished by PSEB during the course of T.O. FY 04 from what was approved by the Commission was discussed in the Tariff Order for 2003-04 and Commission had accepted the loss of generation at GHTP to the tune of 137 MU gross or 124 MU net and allowed additional purchase of power on this account. However, the Commission had disapproved the loss in thermal generation to the extent of 792 MU gross (or 742 MU net) and consequent additional power purchase on this count. The actual generation furnished during the issue of Tariff Order 2003-04 and now furnished in ARR 04-05 are same for GNDTP and GHTP and only 1 MU less in case of GGSTP, thus the total short fall in thermal generation now comes to 930 MU gross or 867 MU net. The Commission, therefore, accepts the loss of generation at GHTP to the tune of 137 MU gross or 124 MU net and allows additional purchase of power on this account. Further, the Commission disapproves the balance loss in thermal generation to the extent of 793 MU gross (or 743 MU net) and consequential additional power purchase on this count. This is discussed further in para 2.16.1.

2.4.2       Hydel Generation

The station-wise generation projected by PSEB in the ARR 2002-03, generation approved by the Commission in Tariff Order for 2002-03, revised estimates by PSEB in ARR 2003-04, actuals furnished by PSEB during the course of Tariff Order for FY 2003-04 and actuals furnished by PSEB in ARR 2004-05 are given below in Table 2.3

Table 2.3
Hydel Generation 2002-03



SI.No.	Station	Projected by PSEB in ARR 2002-03	Generation Approved by the Commission in T.O. 2002-03	Revised Estimates by PSEB as per ARR 2003-04	Acutal for 2002-03 furnished by PSEB during the course of T.O. 2003-04	Actuals furnished in ARR 2004-05
1.	Shanan	540	500	457	469	469
2.	UBDC	500	400	344	394	394
3.	RSD	1138	1038	1060	1151	1151
4.	MHP	1360	1250	797	795	795
5.	ASHP	910	810	629	750	750
6.	Micro Hydel	10	10	10	9	9
	Total own Hydel
a)	Gross	4458	4008	3297	3568	3568
b)	Net	4450	4000	3189	*3446	**3449
7.	Share from BBMB(including share of common pool consumers)	4773 (Common pool =340)	4473 (Common Pool=340)	4387 (Common Pool =340)	4515 (Common Pool =340)	4543 (Common Pool =340)
8.	Total Hydro
9.	Gross	9231	8481	7684	8083	8111
10.	Net	9223	8473	7576	7961	7992

Note : i) PSEB in the ARR filing for 2002-03 had not indicated any free energy to HP on account of Shanan royalty and RSD share but has indicated the same as 101 MU in ARR 2003-04.
* ii) The net hydel generation of 3446 MU has been arrived at by deducting from the gross generation of 3568 MU, the royalty in Shanan Power House (55 MU), free share in RSD (54 MU) to be given to Himachal Pradesh and auxiliary consumption of 13 MU based on actual basis.
** iii) The net hydel generation of 3449 MU has been arrived at by deducting from the gross generation of 3568 MU, the royalty in Shanan Power House free share in RSD to be given to Himachal Pradesh and auxiliary consumption.

The short fall in the Hydel generation from what was approved by the Commission for 2002-03 as furnished by PSEB during the course of issue of T.O. for FY 2003-04 was discussed in the T.O. for 2003-04. Reduction in hydro generation was due to partial failure of monsoons during 2002-03 which was beyond the control of PSEB. The Commission had, therefore, accepted the reduction in hydel generation to the extent of 512 MUs net and allowed the additional power purchase on this account. As per actual figures now submitted by PSEB in ARR 2004-05, there is a shortfall in hydel generation to the extent of 481 MU net.The Commission accepts this reduction in hydel generation and allows additional power purchase on this account.

2.5       POWER PURCHASE

To meet the energy demand, the Commission in its T.O. 2002-03, approved power purchase for the year 2002-03 as 7584 MU gross and 7316 MU net. During course of issue of T.O. 2003-04, PSEB furnished actual purchases for 2002-03 as 8419 MU gross and 8025 MU net. In the ARR 2004-05, PSEB has submitted that actual purchases during 2002-03 are 8422 MU gross and 8164 MU net. The actual losses external to PSEB system work out to be 3.06%. The matter has been further discussed in paras 2.9 and 2.16.

2.6       TRANSMISSION & DISTRIBUTION LOSSES (T&D LOSSES)

The subject of transmission and distribution losses has been discussed in detail in para 7.4. It has been explained that, taking advantage of the fact that virtually the entire supply to the agricultural sector is un-metered and its quantum has to be determined only on the basis of guesswork, the Board has been projecting different figures for the transmission and distribution losses from time to time even for the same year. In order to approach the issue on a more scientific basis, the Commission decided that the aggregate agricultural consumption would be assessed on the basis of a norm which was laid down by the Commission itself, after analyzing all the relevant data and other factors. This practice will continue till such time a more dependable methodology was evolved. For the year 2002-03, this norm was fixed at 1700 kwh/kw/year. The Commission finally allowed 1766 kwh/kw/year in view of partial failure of monsoon in that year after taking into account diversion of 220 MUs towards agriculture supply as discussed in para 2.3. Accordingly, after taking into account all the relevant factors, the Commission had fixed the target for the T&D losses at 25.52%. With the actual figures now made available by the Board along with its ARR for the year 2004-05, the Transmission & Distribution losses for the year 2002-03 are shown to be only 24.54%, which the Commission accepts. The Commission has further decided that the Board will be given a suitable incentive for performing better than the laid down target.

2.7       ENERGY BALANCE

The total energy input based on actuals for the year 2002-03 is 28632 MU against 29132MU approved by the Commission in Tariff Order for 2002-03. The energy available from PSEB’s own generation (Ex-bus) as discussed above is 20468 MU (12476 + 7992) based on actuals for 2002-03 furnished in ARR 2004-05. The actual energy purchased to meet the demand is 8164 MU net or 8422 gross. The details of power purchase requirement as approved by the Commission for the year 2002-03, revised estimates by PSEB in ARR 2003-04, the actuals as furnished by PSEB during the course of issue of T.O. for 2003-04, actuals furnished by PSEB in ARR 2004-05 and energy required to be purchased with the norms for T&D loss fixed by the Commission are given in Table 2.4 below:

Table 2.4
Energy Balance 2002-03


Si. No.	Particulars	Approved by the Commission in T.O. 2002-03	Revised Estimate by PSEB in ARR 2003-04	Actuals as furnished by PSEB during the course of T.O. 2003-04	Actuals by PSEB in ARR 2004-05	With Commission's approved norms for T&D loss
(1)	(2)	(3)	(4)	(5)	(6)	(7)
	A) Energy Requirement
1.	Metered Sales	15941	14800	14746	15145	15145
2.	Sales to Agriculture	5235	6150	5818	5820	5820
3.	Total Sales within the State	21176	20950	20564	20965	20965
4.	Loss Percentage	(25.52%)	(26.25%)	(25.615)	(24.54%)	(25.52%)
5.	T&D Losses	7256	7454	7077	6817	7183
6.	Sales to Common Pool Consumers	340	340	340	368	368
7.	Sales outside State	360	467	482	482	482
8.	Total Requirement	29132	29211	28463	28632	28998
	B) Energy Available
9.	Own generation (EX-Bus)
a)	Thermal	13343	12605	12477	12476	12476
b)	Hydro	4000	3189 (Net after deducting free power and royalty to HP)	3446 (Net after deducting free power and royalty to HP)	3449 (Net after deducting free power and royalty to HP)	3449 (Net after deducting free power and royalty to HP)
10.	Share from BBMB (incl. share of common pool consumers).	4473 (Common Pool=340)	4387 (Common Pool=340)	4515 (Common Pool=340)	4543 (Common Pool=368)	4533 (Common Pool=368)
11.	Purchase Net	7316	9030	8025	8164	8530
12.	Total Available	29132	29211	28463	28632	28998



The actual energy purchased (net) as furnished by PSEB is 8164 MU, 848 MU more than what was approved by the Commission even though the total energy input is less by 500 MUs than what was approved by the Commission. The additional purchase became necessary due to shortfall in Hydro generation to the tune of 481 MU net and lower thermal generation to the tune of 867 MU net.

With T&D loss at 25.52% approved by the Commission, the required energy purchase net works out to 8530 MU. Thus lower T&D losses than the T&D losses approved by the Commission, resulted in decrease in purchase to the extent of 366 MU net.The Commission allows incentive to PSEB due to decrease in purchase of 366 MU (net) on account of lower T&D losses than approved by the Commission. This is discussed in para 2.16.2.

B.       EXPENSES

2.8       FUEL COST

The Board projected fuel cost of Rs.1988.98 crore for generation of 13950 MUs. The Commission approved the fuel cost at Rs.1936.33 crore (Rs.1904.53 crore + Rs.31.80 crores on account of railway freight increase w.e.f. 1.7.2002) for the year 2002-03 for a gross thermal generation of 14580 MU. In addition the Commission vide its order dated 31.12.2002 in petition No. 19/2002 allowed an additional amount of Rs.34.55 crore on account of increase in cost of coal and royalty w.e.f. 18.8.2002 taking gross generation as 14580 MU as approved in the Tariff Order for 2002-03. Thus the total fuel cost allowed to PSEB during 2002-03 is given below in Table 2.5.

Table 2.5
Fuel Cost allowed for 2002-03


Sr. No.	Station	Gross Generation (MU)	Fuel Cost
1.	GNDTP	2650	403.46
2.	GGSTP	8830	1097.66
3.	GHTP	3100	403.41
4.	Total	14580	1904.53
5.	Due to increase in railway freight w.e.f. 1.7.2002		31.80
6.	Total (4+5)		1936.33
7.	Due to increase in coal price w.e.f. 18.8.2002		34.55
8.	Grand Total		1970.88



PSEB, in the annual statement of accounts for 2002-03 has indicated the actual fuel cost and other fuel related expenses for 2002-03 as Rs.2014.04 crores for actual gross thermal generation of 13650 MU.

As discussed in para 2.4.1 there was a short-fall of 930 MU gross in thermal generation.The station-wise gross thermal generation approved by the Commission and the actual gross generation for the year 2002-03 is given below in Table 2.6.

Table 2.6
Gross thermal generation for 2002-03


Sr. No.	Station	Approved by Commission	Actual furnished by PSEB
1.	GNTDP	2650	2499
2.	GGSTP	8830	8245
3.	GHTP	3100	2906
	Total	14580	13650



The fuel cost for different stations corresponding to actual generation has been worked out based on parameters approved by the Commission and is given below in Table 2.7.

Table 2.7
Fuel Cost for 2002-03


Si. No.	Station	Approved by the Commission	For actual generation
1.	GNDTP	403.46	380.47
2.	GGSTP	1097.66	1024.94
3.	GHTP	403.41	378.16
4.	Total	1904.53	1783.57
5.	Due to increase in railway freight w.e.f. 1.7.2002	31.80	29.77
6.	Due to increase in coal price w.e.f. 18.8.2002	34.55	32.35
7.	Grand Total	1970.88	1845.69



The Commission accepts fuel cost as Rs.1845.69 crore for actual generation of 13650 MUs in true up for 2002-03.

2.9 COST OF POWER PURCHASE

As discussed in para 2.5 the actual gross purchases for the year 2002-03 as furnished by PSEB in ARR 2004-05 is 8422 MU including unscheduled interchange (UI) of 98 MU. The actual power purchase cost as furnished by the PSEB for the year 2002-03 is Rs.1466.53 crores as per ARR 2004-05 and Rs.1466.57 crores as per Annual Statement of Account for 2002-03 which is almost same.

In the audit report on the annual accounts it has been observed that the power purchased by the Board during 2002-03 has been depicted as 8213.84 MUs in the annual statement of accounts whereas as per records maintained in the office of Director, ISB, the Board has purchased 8423.24 MU power. The power purchase mentioned in the ARR 2004-05 is 8422 MUs. The power purchase costs for 2002-03 have now been considered on the basis of figures given in the ARR 2004-05.

The station/source-wise purchase approved by the Commission in the Tariff Order 2002-03 and actual purchases made as furnished by PSEB in the ARR 2004-05 with costs are given in Table – 2.8 below:

Table 2.8
Power Purchase for 2002-03


SI. No.	Particulars	Purchase approved by the Commission in T.O. 2002-03		Actuals furnished by PSEB in ARR 2004-05
		Energy (MU)	Cost Rs. Crores	Energy (MU)	Cost (Rs. Crores)
I	NTPC
1	Anta	357	52.48	357	62.67
2	Auriya	588	106.43	685	128.86
3	Dadri (Gas)	925	191.48	973	204.21
4	Dadri (Thermal)	----	----	75	18.79
5.	Singrauli	1546	159.24	1622	188.36
6.	Rihand	844	129.13	908	146.01
7.	Unchahar-I	252	49.64	352	72.52
8.	Unchahar-II	420	102.06	445	101.40
9.	Western Region			6	0.64
	Total NTPC	4932	790.46	5423	923.46
II	NHPC
1	Salal	720	41.76	832	71.15
2	Bairasul	355	15.27	307	32.17
3	Tanakpur	60	6.84	59	9.27
4	Chemera	335	66.33	232	39.82
5	Uri	330	96.36	333	108.23
	Sub-Total NHPC	1800	226.56	1763	260.64
III	NPC
1	NAPP	407	97.27	363	98.49
2	RAPP	----	----	101	32.02
	Sub-Total NPC	407	97.27	464	130.51
	Total CGS	7139	1114.29	7650	1314.61
IV	Co-generation	95	30.02	81	24.06
V	Banking
1	HPSEB	120	28.80	172	43.07
2	Jammu and Kashmir	160	33.28	195	45.25
3	Malana	70	19.60	----
4	UPCL	----	----	100	23.91
5	Total	350	81.68	467	112.23
VI	Others
1	PTC	----	----	126	28.70
2	UI (Net)			98	(13.07)
	Add Transmission Charges to PGCIL		92.81		Included in individual sources
	Total Purchase	7584	1318.80	8422	1466.53
	Average Cost Ps/kWh		174		174



The additional cost due to purchase of additional energy to the extent of 838 MU (8422-7584) to meet the shortfall in the Hydel generation and lower Thermal generation after accounting for lower T&D losses is Rs.147.73 crores (Rs.1466.53-1318.80 crores)

The Commission now accepts the cost of power purchase as Rs.1466.53 crores for actual power purchase of 8422 MU gross.

2.10       EMPLOYEES COST

The PSEB had projected the employees cost at Rs.1316.50 crores, net after capitalization for the year 2002-03.

It was observed by the Commission that the manpower in PSEB both in terms of number of employees per 1000 consumers and per Mkwh sold was one of the highest in the country as compared to the other SEBs. This issue was also raised by all the objectors who were critical about the large manpower in the PSEB and high employee costs. The State Government had also commented on the high manpower costs in the Board which needed to be reduced. The PSEB on its part, had explained a number of steps having been taken towards reducing the establishment expenditure and to bring in greater efficiency and ensure better utilization of the existing manpower.

The Commission, after detailed analysis, in the Tariff Order of September 6, 2002 taking a liberal view approved this cost at a reasonable level of Rs.1250.13 crores after capitalization against Rs.1316.50 crores projected by the Board for the year 2002-03 on the condition that PSEB shall put the manpower to optimum utilization, identify the surplus staff and re-deploy them after proper training in the areas of customer service such as meter reading, billing and revenue realization, attending customer complaints promptly so as to provide better services to the consumers. The Board was directed to implement the measures already initiated and show economy in the employee costs in the tariff filings from 2003-04 onwards. The Commission also decided to cap this cost at the approved level of Rs.1250.13 crores for the next year 2003-04 as well. It was made clear to the PSEB that the Commission would not allow any addition to this cost during the next year.

Inspite of this clear indication, the PSEB in the ARR for 2003-04 projected the revised estimate for 2002-03 at Rs.1355.21 crores. The revised estimates were assessed after obtaining actuals for 11 months from April, 02 to February, 03 and estimating the expenditure for the remaining one month of March, 03 on average basis which worked out to Rs.1275.62 crores (gross) and Rs.1228.78 crores (net) - well within the cost already approved by the Commission. The employees cost was thus retained at Rs.1250.13 crores.

The PSEB in its submission made vide letter No. Spl-1 CC/DTR-102 dated October 14, 2004, has stated that in the Tariff Order for the year 2002-03, the Commission had allowed the employees cost at Rs.1250.13 crores, after assessing the gross cost at Rs.1361.80 crores and taking the percentage of capitalization at the level of year 2000-01 i.e. 8.20% which worked out to Rs.111.67 crores. However, as per audited accounts, the capitalization was Rs.78.08 crores only due to lower level of investments in FY 2002-03. With actual gross employees cost at Rs.1352.74 crores, the net employees cost after capitalization stands at Rs.1274.66 crores instead of Rs. 1250.13 crores allowed by the Commission. The Board has, therefore, prayed that the base line level of employees cost determined for FY 2002-03 may be revised to the level of audited accounts and further increases be allowed accordingly.

In the Tariff Order for FY 2002-03, the employees cost was assessed on the basis of estimates only. In the subsequent order for FY 2003-04 also, the Commission had to rely upon the revised estimates of employees cost in the absence of actuals for the year 2002-03. The position now depicted by the Board is factually correct and merits to be accepted. The actual gross employees cost for the year is, in fact, less than the amount already approved by the Commission. Slight excess in net amount of employees cost is due to higher level of capitalization allowed by the Commission while arriving at the net amount. As capitalization is charged as per basic principles governing such classification, there is no escape but to allow actual level of capitalization. Hence credit for less capitalization needs to be allowed to the Board.

The Commission, therefore, approves the employees cost at Rs.1274.66 crores for the year 2002-03. The cap on employees cost is also revised for the next year 2003-04 to the approved level of expenditure for 2002-03 i.e. Rs.1274.66 crores.

2.11       OPERATION AND MAINTENANCE COST

The Commission in its Tariff Order dated September 6, 2002 had approved the Operation & Maintenance expenses at Rs.206 crores for the year 2002-03 against Rs.215 crores projected by the PSEB.

The PSEB in its ARR for the next year 2003-04, revised the estimate of these expenses to Rs.231.14 crores for the year 2002-03. The Commission, however, approved Rs.222.79 crores towards this cost for FY 2002-03 in its Tariff Order dated May 23, 2003.

In the audited accounts of the PSEB for the FY 2002-03, the expenditure on Operation & Maintenance is depicted at Rs.204.28 crores. There is an excess in this cost element over the amount already allowed by the Commission which needs to be adjusted. The Commission, therefore, now approves Rs.204.28 crores as O&M expenses for the year 2002-03 on actual basis.

2.12       ADMINISTRATION AND GENERAL EXPENSES

In the ARR for the year 2002-03, the PSEB had projected Administration & General expenses at Rs.47 crores, net after capitalization. The Commission, however, approved the expenditure of Rs.37 crores, after taking into account the savings to the extent of Rs.10 crores factored in by the Board itself in its subsequent submissions by adopting several economy measures.

The PSEB made no change in these expenses in the revised estimates for the year 2002-03. The Commission, therefore, retained this cost at the approved level of Rs.37 crores.

As per audited accounts of the PSEB, the actual expenditure under this head for the year 2002-03 is depicted at Rs.42.36 crores, net of capitalization. This works out to 12.65% excess over the approved cost for the year 2002-03. The PSEB having failed to keep the expenditure under check so as to restrict it to the approved level, the Commission finds no justification to alter the approved limit of Rs.37 crores and compensate the Board for excess expenditure of Rs.5.36 crores The approved level of expenditure for the year 2002-03 under this head is, therefore, retained at the same level of Rs.37 crores.

2.13       DEPRECIATION

PSEB had claimed depreciation of Rs.829.80 crores for the year 2002-03 on the gross fixed assets of Rs.12515.78 crores at the beginning of the year 2002-03. Against this, the Commission had approved depreciation charges of Rs.659.55 crores at the time of issue of Tariff Order for the year 2002-03.

While submitting the ARR for the year 2003-04, the amount of depreciation for the year 2002-03 was revised by PSEB to Rs.662.50 crores based on the function-wise depreciation rates as per annual accounts for the year 2001-02. However, there was adjustment of Rs.19.22 crores in depreciation amount in the year 2001-02. After carrying out this adjustment there was change in the rates of depreciation. As such, the actual amount of depreciation on fixed assets of Rs.12548.93 crores worked out to Rs.641.35 crores which was approved by the Commission at the time of issue of Tariff Order for the year 2003-04.

Now in the ARR for the year 2004-05, PSEB has revised the amount of depreciation to Rs.564.17 crores based on asset value of Rs.12548.93 crores for the year 2002-03 as per audited accounts. Thus, there is an excess in the amount of depreciation already allowed. This excess amount of depreciation needs to be adjusted.

The Commission, therefore, now approves Rs.564.17 crores as revised amount of depreciation for the year 2002-03 on actual basis.

2.14       INTEREST AND FINANCE CHARGES

In the ARR for the year 2002-03, PSEB projected interest and finance charges of Rs.1500.30 crores and Rs.40.00 crores respectively. Out of this claim of Rs.1540.30 crores, capitalization of interest of Rs.197.90 crores was proposed by PSEB. Thus, the net claim for interest and finance charges worked out to Rs.1342.40 crores. Taking into account the pre-actuals of interest charges for the year 2001-02, PSEB revised its claim of interest charges to Rs.1401.91 crores against Rs.1500.30 crores. Against this amount, the Commission approved interest and finance charges of Rs.1307.55 crores and Rs.25.00 crores respectively bringing the total to Rs.1332.55 crores. Of this amount, capitalization was determined at Rs.165.92 crores and thus net amount of interest and finance charges was allowed at Rs.1166.63 crores.

PSEB while submitting the ARR for the year 2003-04, revised its claim for interest and finance charges to Rs.1368.95 crores including Rs.32.20 crores as finance charges for the year 2002-03. Capitalization of interest charges was proposed at Rs.86.30 crores. Against this amount, the Commission approved interest and finance charges of Rs.1289.19 crores which included finance charges of Rs.20.90 crores. Out of this, capitalization of Rs.102.79 crores was approved in the Tariff Order for the year 2003-04. Thus, the net interest and finance charges approved by the Commission for the year worked out to Rs.1186.40 crores.

In the ARR for the year 2004-05, PSEB has indicated the actual amount of interest charges of Rs.1291.46 crores and finance charges of Rs.28.26 crores for the year 2002-03. Out of interest charges of Rs.1291.46 crores, capitalization of interest charges is of an amount of Rs.59.04 crores. Against this claim of PSEB, the interest and finance charges as per audited accounts for the year 2002-03 are Rs.1295.98 crores. Out of this, interest charges of Rs.59.04 crores have been capitalized. As such, the net amount of interest and finance charges for the year 2002-03 works out to Rs.1236.94 crores.

It is noted that this amount includes interest of Rs.82.94 crores and Rs.551.52 crores against Rs.49.44 crores and Rs.553.88 crores allowed by the Commission on working capital loans and state government loans respectively. Thus, it is clear that as per the audited balance sheet, the amount of interest and finance charges is higher by Rs.33.50 (82.94-49.44) crores on account of excess interest on working capital loans.

In the case of interest on state government loans also, the Commission had worked out the amount at Rs.553.88 crores instead of Rs.551.52 crores as per audited balance sheet. This had resulted in allowing excess expenditure of Rs.2.36 crores on interest on state government loans.

Hence, the net amount of interest allowable to PSEB for the year 2002-03 works out to Rs.1201.08 (1236.94 -33.50 -2.36) crores in place of Rs.1186.40 crores already allowed in the Tariff Order 2003-04.

The Commission, therefore, approves interest and finance charges of Rs.1260.12 crores (gross) and Rs.1201.08 crore (net) after capitalization of interest of Rs.59.04 crores for the year 2002-03.

2.15       NET FIXED ASSETS AND RETURN

PSEB had proposed return @3% on net fixed assets of Rs.7498.00 crores for the year 2002-03 at Rs.224.94 crores against which the Commission had approved return of Rs.228.70 crores while issuing Tariff Order for the year 2002-03. Subsequently, PSEB revised this figure to Rs.230.00 crores in the ARR for the year 2003-04 but the Commission approved an amount of Rs.230.34 crores based on net capital base of Rs.7678.05 crores on the basis of pre-actuals. The audited accounts for the year 2002-03 are available now and the capital base for the return is the same. The Board has depicted the same amount of return of Rs.230.34 crores in the ARR for the year 2004-05. Therefore, no change in amount of return on fixed assets for the year 2002-03 is required.

2.16       EXPENSES DISAPPROVED / INCENTIVE APPROVED BY THE COMMISSION

2.16.1       Expenses disapproved due to less thermal generation & consequent additional power purchase

As discussed in para 2.4.1, the Commission has disapproved reduction in thermal generation to the tune of 793 MU gross and 743 MU net and consequent additional power purchase on this account. The station-wise reduction in gross generation disapproved by the Commission is 151 MU for GNDTP (2650-2499), 585 MU for GGSSTP (8830-8245) and 57 MU (3100-2906-137) for GHTP.

The saving in fuel cost for different stations corresponding to this reduction in generation based on parameters approved by the Commission, works out to be Rs.106.74 crore as given below in the table.

Savings in fuel cost due to less thermal generation during 2002-03


Sr. No.	Station	Approved by Commission		Actual Basis
		Generation MU	Fuel Cost (Rs. crores)	Reduction in generation (MU)	Saving in fuel cost (Rs. crore)
1	GNDTP	2650	403.46	151	22.99
2	GGSSTP	8830	1097.66	585	72.72
3	GHTP	3100	403.41	57	7.42
4	Total	14580	1904.53	793	103.13
5.	Due to increase in Rly. Freight w.e.f. 1.7.2002		31.80		1.73
6.	Due to increase in coal price w.e.f. 18.8.2002		34.55		1.88
7.	G. Total		1970.88		106.74



The gross additional power purchase necessitated on account of reduction of 743 MU net thermal generation and disapproved by the Commission works out to be 766 MU by taking losses external to PSEB system on actual basis as 3.06%. Cost of this 766 MU additional power purchase at incremental cost works out to be Rs.135.04 crore (147.73 x 766 / 838). Hence the net extra expenditure due to disapproved thermal generation is Rs.28.30 crore (i.e. 135.04 – 106.74).

The net extra expenditure due to less thermal generation worked out during the course of issue of Tariff Order for 2003-04 was Rs.108.03 crore. The difference is due to the difference in incremental cost of additional power purchase which worked to be Rs.211.04 crore in the last Tariff Order as compared to Rs.135.04 crore now. This difference in incremental cost is due to the reduced power purchase cost to the tune of Rs.78.77 crore (1545.30 – 1466.53) whereas the quantum of power purchase remains almost the same.

The Commission, thus, disapproves amount of Rs.28.30 crore on account of less thermal generation.

The effect of this item is reflected at Sr. No. 10(i) of Table 2.9.

2.16.2       Incentive approved due to low T&D losses and consequent less power purchase

As discussed in para 2.7, the Commission has allowed incentive for less purchase of 366 MU net due to lower T&D losses than approved by the Commission. The gross power purchase due to this works out to be 378 MU by taking losses external to PSEB system on actual basis as 3.06%. The incremental cost of this additional power purchase will be Rs.66.64 crore (147.73x378 / 838).

In the Tariff Order for 2003-04, the Commission had disapproved an amount of Rs.8.95 crore consequent to disapproved additional purchase of 31 MU net due to higher T&D losses than approved by the Commission. This is due to the fact that during the course of issue of Tariff Order for the year 2003-04 Board had intimated actual sales within the State as 20564 MUs and in the ARR 2004-05 these sales have been stated to be 20965 MUs, an increase of 401 MUs. This led to T&D losses now becoming less than approved by the Commission and hence incentive due to consequent less power purchase requirement.

The Commission, thus, approves this amount of Rs.66.64 crores as incentive due to lower T&D losses.

The effect of this item is reflected at Sr. No. 10 (ii) of Table 2.9.

2.16.3       Expenses disapproved for diversion of energy from LS to Agriculture

During the course of issue of Tariff Order for 2003-04, PSEB had stated that diversion from LS category to agriculture was done under the instructions from the State Government. As discussed in para 2.3, the Commission has accepted diversion of 220 MUs from LS category to meet the agriculture demand. The loss of revenue on account of this diversion works out to Rs.75.24 crores. In the Tariff Order for 2003-04, the Commission had worked out the loss of revenue of Rs.164.16 crore on account of diversion. The difference in loss of revenue worked out now and in the Tariff Order 2003-04 is due to the fact that the quantum of allowed diversion now is 220 MU in place of 480 MU allowed in the Tariff Order 2003-04.

The Commission, thus, disallows loss of revenue on account of this diversion which work out to be Rs.75.24 crores for 220 MU @ 342 Ps/unit which is not to be passed on to the consumers.

The effect of this item is reflected at Sr. No. 16 of Table 2.9.

C.       MISCELLANEOUS REVENUE (NON -TARIFF INCOME)

In the ARR for the year 2002-03, PSEB had estimated the Miscellaneous Revenue (Non-Tariff Income) at Rs.420.00 crores. In the Tariff Order for the year, the Commission had approved the non-tariff income at Rs.462.00 crores taking into account the pre-actuals of Rs.420.16 crores for the year 2001-02 and by adding an increase of 10% to these pre-actuals. The actual CAGR of miscellaneous receipts was 11.5% for the last three years. The amount of non-tariff income proposed by PSEB and approved by the Commission included an element of 15% surcharge on the Railway freight on coal.

In the ARR for 2003-04, PSEB had submitted revised income estimates of Rs.252.87 crores excluding the 15% surcharge on Railway freight on coal. Against these estimates the Commission had approved receipts of Rs.301.34 crores based on increase in income from meter rentals and revenue from thefts and pilferage and increase in other miscellaneous receipts.

In its ARR for the year 2004-05, PSEB has now revised the non-tariff income for the year 2002-03 to Rs.281.30 crores based on actuals as per the audited accounts for the year. The actual receipts are less by Rs.20.04 crores as compared to the approved non-tariff income for the year.

The Commission, however, feels that there is no justifiable reason for non-tariff income to be at a lesser level than the one approved by the Commission for the year 2002-03.The non-tariff income level approved by the Commission was after taking into account the additional income to be generated from thefts and pilferages and tighter control over other items of revenue. Apparently, the Board has not shown adequate efforts in this direction. As such, the Commission does not feel that the Board should be compensated on this account.. Therefore, the Commission retains the approved revenue receipts at Rs.301.34 crores notwithstanding the actuals being on lower side.

2.17       REVENUE FROM SALE OF POWER 2002-03

In its ARR, PSEB had projected revenue from sale of power at the current tariff at Rs.4819.18 crores excluding subsidy from Punjab Government. Against this amount, the Commission had approved Rs.4919.18 crores. The Board revised the estimates of revenue from sale of power in the ARR for the year 2003-04 to Rs.6054 crores including subsidy of Rs.950 crores for AP and DS(SC) categories of consumers. Against these revenue estimates, the Commission in the tariff order for the year 2003-04 approved expected revenue at tariff as per tariff order dated September 6, 2002 at Rs.6021.38 crores inclusive of subsidy of Rs.950 crores.

As per the audited accounts for the year 2002-03, the revenue from sale of power including subsidies and grants is shown as Rs.6290.70 (5340.57+950.13) crores. This amount includes non-tariff income of Rs.138.84 crores pertaining to meter rent/service rent, recoveries from theft of power, wheeling charges and some component of miscellaneous charges of Rs.96.86 crores, Rs.23.55 crores, Rs.3.04 crores and Rs.15.39 crores respectively. Besides, subsidy amount of Rs.950.13 crores includes Rs.0.13 crores on account of grant for research and development which is unrelated to the sale of power. By deducting these other income items totaling Rs.138.97 crores, the net revenue from existing tariff comes to Rs.6151.73 crores.

The Commission, therefore, approves revised amount of revenue from existing tariff at Rs.6151.73 crores for the year 2002-03.

D.       REVENUE REQUIREMENT

In view of above analysis, the revised revenue requirement for the year 2002-03 would be as per details given below :-

Table 2.9
Revenue Requirement for 2002-03


Sr.No.	Item of expense	Approved by Commission in Tariff Order 02-03	Approved by Commission in Tariff Order 03-04	Actuals as per Balance Sheet for 02-03	Now approved by Commission
1.	Fuel Cost	1936.33	1815.49	*2007.38	1845.69
2.	Power Purchase Cost	1318.80	1545.30	1466.57	1466.53
3.	Employee cost	1250.13	1250.13	1274.66	1274.66
4.	O&M expenses	206.00	222.79	** 204.28	204.28
5.	A&G expenses	37.00	37.00	42.36	37.00
6.	Depreciation	659.55	641.35	564.17	564.17
7.	a) Intt. Charges	1307.55	1268.29	----	----
	b) Fin. Charges	25.00	20.90	----	----
	Sub-total (a+b)	1332.55	1289.19	1295.98	1260.12
	c) Intt.capitalized	(-) 165.92	(-)102.79	(-) 59.04	(-) 59.04
	Net Intt.& Fin. Charges	1166.63	1186.40	1236.94	1201.08
8.	Return on NFA@3%	228.70	230.34	----	230.34
9.	Total revenue requirement	6803.14	6928.80	6796.36	6823.75
10.	Disapproval/ Incentive for i) less thermal generation ii) Higher/ lower T&D losses		(-)108.03 (-) 8.95	-----	(-) 28.30 (+) 66.64
11.	Final revenue requirement (9-10)	6803.14	6811.82	6796.36	6862.09
12.	Less: Other income (non -tariff income)	462.00	301.34	***281.30	301.34
13.	Revenue requirement through tariff (11-12)	6341.14	6510.48	6515.06	6560.75
14.	Revenue from tariff	6380.32	6021.38	****6151.73	6151.73
15.	Gap (13-14)@	(-) 39.18	489.10	363.33	409.02
16.	Less revenue equivalent to diversion from LS category to AP category @342 Ps/unit		(-) 164.16		(-) 75.24
17.	Net Gap@	(-) 39.18	324.94	363.33	333.78


* As per balance sheet, cost of fuel is Rs. 2014.04 crores. This is inclusive of operating expenses of Rs.6.66 crores which are part of O&M expenses. By excluding these expenses, cost of fuel is taken as Rs.2007.78 crores.
** O&M cost shown as Rs.199.33 crores in the balance sheet, with addition of operating expenses (Rs.6.66 crores) and after capitalisation of Rs.1.71 crore, comes to Rs.204.28 crores.
*** As per balance sheet, other income is Rs.142.46 crores. This does not include non-tariff income of Rs.138.84 crores, such as, meter rent/service rent, recoveries from theft of power, wheeling charges and partly misc. charges of Rs.96.86 crores, Rs.23.55 crores, Rs.3.04 crores and Rs.15.39 crores respectively (Refer Sr. No.15 to 17 of Schedule-1 of balance sheet and Sr.No.6 of Format 1.4 of ARR for 2004-05 of PSEB). This amount of Rs.138.84 crores has been accounted for as other income viz. Rs.281.30 crores (142.46 + 138.84).
**** As per balance sheet, revenue from sale of power is Rs.5340.57 crores which is inclusive of other income amounting to Rs.138.84 crores. Revenue subsidies & grants amounts to Rs.950.14 crores. This includes Rs.0.14 crore (13.80 lacs) as grant for research & development expenses. After adjustments of these items, the actual revenue from tariff comes to Rs.6151.73 crores.
@ Plus Gap denotes revenue deficit i.e. deficit of revenue from tariff than requirement and Minus Gap denotes revenue surplus i.e. surplus of revenue from tariff over requirement



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