Chapter-3

Commission’s Analysis & Decisions on Revised ARR for the year 2003-04

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3.1         The Commission had approved the ARR and Tariff for the year 2003-04 in its second tariff order dated May 23, 2003. The Tariff Order of the Commission contained its approval on various issues concerning ARR and Tariff Proposals of the Board for the year 2003-04. These approvals were based on the estimates presented by the Board for various costs to be incurred and revenues likely to be earned by the Board during the year. Since then, in the ARRs for the year 2004-05, the Board has furnished pre-actuals for the year 2003-04 and has also projected a revenue gap of Rs.68 crores for the year. This alongwith part of the revenue gap for the year 2004-05 is proposed to be converted to regulatory asset to be recovered from the consumers through tariff in future years. The Board has thus petitioned to the Commission to revise its ARR and tariff for the year 2003-04 as well in its ARRs for the year 2004-05. The ARRs and Tariff Applications of the Board were put up for public hearings and public objections thereon have been received and public hearings held. There are major differences in certain items of costs as well as revenue earned by the Board between the approvals granted by the Commission and the pre-actuals furnished by the Board. The Commission, therefore, considers it appropriate and fair to re-look at the approvals granted by it earlier and to re-determine the approvals granted with reference to pre-actuals made available by the Board and taking into account the other relevant factors. This Chapter contains detailed discussions on each of the various issues involved in this regard.

A.       ENERGY DEMAND, AVAILABILITY AND BALANCE

3.2       ENERGY DEMAND (SALES) FOR THE YEAR 2003-04

The PSEB in its ARR filing for the year 2003-04 projected the aggregate sales of 22688 MU for the year 2003-04. PSEB projected aggregate sales within the State at 21888 MU for the year 2003-04 of which metered category amounts to 15600 MU and agricultural pump sets 6288 MU. The Board arrived at the category-wise sales by assuming certain percentage increase over the revised estimates for the year 2002-03. The percentage increase over 2002-03 (RE) sales had been arrived at by the Board based on actual increase in sales during April-September 2002 over the actual sales for the corresponding period during 2001-02 and certain assumed increase for the period November 2002 to March 2003 over the actuals for corresponding period during 2001-02.

The projections of metered sales by PSEB based on one year growth, rather on six months basis were not expected to give a realistic estimation of energy sales. The Commission had, therefore, considered 3 year Cumulative Annual Growth Rate (CAGR) to arrive at the estimated metered sales for the year 2003-04. The sales projected by PSEB in the ARR 2003-04, sales approved by the Commission, revised estimates by PSEB in ARR 2004-05 and pre-actuals furnished by PSEB are given below in Table 3.1 below:

Table 3.1
Energy Sales for 2003-04

SI. No.	Category	2003-04
		Proposed by PSEB in ARR 2003-04	Approved by the Commission	Revised Estimated Sales by PSEB contained in ARR 2004-05	Pre-actuals furnished by PSEB
1.	Domestic	5491	5065	5259	5261
2.	Non-Residential	1212	1235	1279	1279
3.	Small Power	643	623	719	718
4.	Medium Power	1537	1541	1477	1479
5.	Large Suppy	6260	6958	6727	6729
6.	Public Lighting	86	127	102	103
7.
Bulk Supply and Grid	371	416	500	498
8.	Metered Sales (within State)	15600	15965	16063	16067
9.
Agriculture	6288	5707	6243	6243
10.	Total sales within the State	21888	21672	22306	22310
11.	Common pool	340	340	381	381
12.	Outside State sales	460	460	426	426
13.	Total (10+11+12)	22668	22472	23113	23117

As compared to the estimates approved by the Commission in Tariff Order 2003-04, the pre-actual consumption figures show that there is an increase of 196 MU in consumption of domestic category. It is also observed that there is a shortfall in the consumption of large supply industry by 229 MU and a reduction of 62 MU in medium supply power consumers, but in case of small power consumers there is an increase of 95 MU thus indicating overall shortfall of 196 MU in industrial consumption. Also it is noted that industrial consumption though lower than the level approved by the Commission, is much higher than the original estimation made by the Board. Further, the actual overall metered consumption in 2003-04 within the State is 16067 MU against 15965 MU approved by the Commission. The total sales in the State is thus more than the level approved by the Commission.

The Commission, therefore, accepts the actual metered consumption, including sale to common pool consumers and outside state sales for the year 2003-04 as furnished by PSEB.

3.3       AGRICULTURAL CONSUMPTION

PSEB in its ARR filing for 2003-04 projected consumption by agricultural pumpsets as 6288 MU at 1858 kwh/kw/year. This was stated to be based on sample metering study by PSEB. The Commission deliberated at length on the normative consumption by agricultural pumpsets in the tariff orders dated 6th September 2002 and 23rd May, 2003 and approved the agriculture consumption of 5707 MU @ 1650 kwh/kw/year on a connected load of 3458690 KW by assuming 5% increase in connected load during 2003-04 over the actual connected load of 3293991 KW as on 31.3.2003.

PSEB in its ARR filing for 2004-05 has stated that the revised consumption by pumpsets during 2003-04 is 6243 MU as per sample metering and the connected load as on 31.3.2004 has been indicated as 3480917 KW giving the consumption norm of 1793 kwh/kw/year against 1650 kwh/kw/year approved by the Commission. The year 2003-04 was a normal monsoon year and the Commission sees no reason for accepting agriculture consumption in excess of the approved norm. The issue has been discussed in greater detail in para 7.2.The Commission, therefore, approves the revised agriculture consumption for 2003-04 as 5744 MU @ 1650 kwh/kw/year on actual connected load of 3480917 kw as on 31.3.2004.

3.4       PSEB’S OWN GENERATION

3.4.1       Thermal

PSEB had projected gross generation of 13720 MU from the thermal stations for the year 2003-04 in the ARR for the year 2003-04. The generation was projected based on maintenance schedule for the year and historical efficiency levels of operation. However, during the proceedings before the Commission it was intimated by PSEB that the maintenance schedule for GNDTP was revised. Based on the revised maintenance schedule and previous performance of the stations, the Commission approved gross generation of 13978 MU. The Board in its ARR filing for the year 2004-05 has furnished actual generation for the year 2003-04 at 14235 MU.

The station-wise generation is given in Table 3.2 below.

Table 3.2
Thermal Generation 2003-04

SI. No.	Station	Projected by PSEB in ARR 2003-04		Generation Approved by the Commission in T.O. 03-04		Pre-actuals for 2003-04 furnished by PSEB in ARR 04-05
		Gross	Net	Gross	(Aux. Con) Net	Gross	(Aux. Con) Net
1.	GNDTP	2120	1916	2207	(9.62%) 1995	2551	(9.54%) 2308
2.	GGSTP	8500	7820	8649	(8.00%) 7957	8304	(8.33%) 7612
3.	GHTP	3100	2824	3122	(8.90%) 2844	3380	(8.91%) 3079
	Total	13720	12560	13978	12796	14235	12999



There is an increase of 257 MU in gross generation from thermal stations from what was approved by the Commission. The actual generation at GNDTP and GHTP is higher than the levels approved by the Commission, whereas, in case of GGSTP it is lower. The auxiliary consumption at GNDTP and GHTP is very close to the levels approved by the Commission. In case of GGSTP, the actual auxiliary consumption obtained during 2003-04 is 8.33% against 8% approved by the Commission. PSEB has stated that introduction of ABT regime in the northern region from 1st December 2002 has considerably affected the generation and auxiliary consumption of the thermal stations of PSEB on account of higher and frequent backing down. From the backing down details supplied by the Board in the ARR 2004-05, it is observed that during 2003-04, percentage backing down at GGSTP is higher thus explaining the lower generation and higher auxiliary consumption at GGSTP. It is stated by PSEB that the generation achievement in 2003-04 has been higher in case of GNDTP on account of postponement of R&M works. The Commission thus accepts the gross thermal generation and auxiliary consumption for 2003-04 as actually obtained during the year.

3.4.2       Hydel Generation

The PSEB had projected the gross hydel generation including its share from BBMB at 7235 MU for 2003-04 in the ARR for 2003-04. Considering the average generation for three years, the Commission had approved gross generation in Hydro stations at 8375 MU including share from BBMB. The PSEB has stated in the ARR for 2004-05 that the actual gross generation for hydel stations for the year 2003-04 is 9413 MU. The hydel generation for the year 2003-04 is given in Table-3.3 below:

Table 3.3
Hydel Generation 2003-04

SI. No.	Station	Projected by PSEB in ARR 2003-04	Generation Approved by the Commission	Pre-actual for 2003-04 furnished by PSEB
1.	Shanan	457	490	564
2.	UBDC	344	329	427
3.	RSD	1060	1229	1548
4.	MHP	835	1315	1029
5.	ASHP	629	666	816
6.	Micro Hydel	10	10	10
7.	Total own Hydel
	Gross	3335	4038	4394
	Net	*3228	**3921	***4261
8.	Share from BBMB (including share of common pool consumers)
	Gross			5019 (Common pool=381)
	Net	3900 (Common pool=340)	4337 (Common pool=340)	****4822 (Common pool=381
9.	Total Hydro
	Gross			9413
	Net	7128	8258	9083

Note : * Net of auxiliary consumption (6 MU) and royalty and share of HP (101 MU).
** Net of royalty from Shanan (52 MU), HP share from RSD @ 4.6% (57 MU) and auxiliary consumption (8 MU).
*** Net of auxiliary consumption (11 MU) and royalty /share of HP (122 MU)
**** The transmission losses of BBMB system were earlier accounted for by BBMB itself and quantum of the energy input to Board was taken at receiving end in the Board. Accordingly input energy from BBMB to the PSEB was net energy input after accounting for transmission losses. However, with the coming of ABT regime, the transmission losses are now being accounted for by NREB and as such, BBMB now accounts for energy input to PSEB at its own bus. Accordingly, for PSEB energy input is shown separately as gross (as accounted for by BBMB now) and net (after accounting for transmission losses).

Thus there is an increase of 825 MU net in the Hydel Generation from what was approved by the Commission for 2003-04. Increase in hydro generation is stated to be on account of a good monsoons during 2003-04. The Commission, therefore, accepts the hydel generation for 2003-04 as actually obtained during the year.

3.5       POWER PURCHASE

To meet the energy demand, the Commission approved power purchase for the year 2003-04 as 8826 MU gross and 8451 MU net.

In the ARR for the year 2004-05, PSEB has intimated pre-actuals of purchase for 2003-04 as 8945 MU gross and 8603 MU net. Matter has been further discussed in para 3.9.

3.6       TRANSMISSION & DISTRIBUTION LOSSES (T&D LOSSES)

PSEB had projected the T&D losses at 26.00% (7690 MU) for the year 2003-04 in its ARR filing for 2003-04. The T&D losses are not based on any measurement of energy by metering etc., but arrived at by deducting (i) the metered sales and (ii) assessed consumption by agriculture pumpsets from the energy input into the system. This loss would, therefore, to a large extent depend on the assessed consumption by pumpsets. The 26.00% T&D loss projected by PSEB for 2003-04 was based on consumption of 6288 MU by agricultural pumpsets. As discussed earlier in para 3.3 the Commission approved consumption by agriculture pumpsets at 5707 MU, @ 1650 kwh/kw/year. With this norm of consumption by agriculture pumpsets and taking into consideration the loss reduction programme given by the PSEB, the Commission had fixed the losses at 24.50% for the year 2003-04 (a reduction of 1.02% over the losses fixed for 2002-03).

The PSEB in their ARR filing for the year 2004-05 has come out stating that the T&D losses during the year 2003-04 would be 25.35% and it would reduce the losses to 24.0% during the year 2004-05. The revised T&D loss of 25.35% is with the consumption by agriculture pumpsets assumed at 6243 MU. With actual sales including AP consumption at 5744 MU as now approved in para 3.3 and actual energy availability (generation + purchases) as discussed earlier in the chapter, the T&D losses work out to 27.00% against the target of 24.50% fixed by the Commission as shown in Table 3.4 under Energy Balance. The Commission sees no reason for accepting T&D losses in excess of the approved norm. The Commission, therefore, retains the T&D losses at 24.5% as approved in the Tariff Order for 2003-04 and disallows the consequential additional power purchase on this account. The matter has been discussed further in para 3.7 and 3.9.

It is noted from the above that the T&D losses of the Board for the year 2003-04 were as high as 27 percent against the target of 24.50 percent fixed by the Commission. The Board achieved T&D losses of 24.54 percent against the target of 25.52 percent during the year 2002-03. Thus, while the Board over achieved the T&D losses reduction target for the year 2002-03, it has not been able to even sustain the loss reduction level achieved during the year 2002-03. Thus, for the year 2003-04, the actual performance is far below the target fixed by the Commission. The Board in its submissions in the ARR for the year 2004-05 has stated that the increase in the T&D losses for the year 2003-04 is due to higher incremental losses on account of energy to the low end consumers, non replacement of slow and sluggish meters with static meters, installation of inefficient submersible motors by the consumers and unauthorized load of the motors not regularized. These reasons are not considered convincing for such a short fall in target achievement and steep downward trend in performance, especially when almost all these factors were in operation during the year 2002-03 as well. Of course, the Board is basing its submissions on the projected T&D loss level of 25.35 percent and not 27 percent as determined by the Commission. Even this level of performance needed to be convincingly explained by the Board as it was well below the target fixed by the Commission and the actual performance level even of the year before. One of the argument that can be put forth for vast difference in T&D losses in two years could be the different levels of agricultural consumption approved by the Commission in the two years. For the year 2002-03, the Commission approved the agricultural consumption norm of 1700 kwh/kw/year and in addition allowed diversion of 220 MUs from large supply to agriculture in view of the drought like situation. This effectively meant accepting the agricultural consumption at the level of 1766 kwh/kw/year. Against this for the year 2003-04, the Commission has allowed agricultural consumption only at the level of 1650 kwh/kw/year in view of the good monsoon. This argument can, however, not carry much weight as the Commission has assessed agricultural consumption on realistic basis for the two years and the difference in agricultural consumption level is on account of the difference in actual requirements of energy in agricultural sector in view of the drastically different monsoon conditions. The agricultural consumption is definitely not meant to cover or camouflage T&D losses and as such differences in methods of estimating agricultural consumption cannot be used to explain poor performance on T&D front. Unusually high requirement of energy in agricultural sector allowed by the Commission during the year 2002-03 is as per Board’s own assertion claiming as much as 15 to 20 percent increased consumption in khariff during that year which is the main crop responsible for agricultural consumption for the whole year. There is, therefore, no disputing the fact that the performance of the Board regarding reduction in T&D losses actually deteriorated during the year 2003-04. The poor performance will also result in financial losses for the Board which will not be recouped through tariff and will in the end go to make financial position of the Board unhealthy. The Commission views this deterioration seriously and directs the Board to improve its performance substantially in the current and future years and ensure achieving targets fixed by the Commission, if not improving on them.

3.7       ENERGY BALANCE

The total energy input based on actuals for the year 2003-04 is 30685 MU against 29505 MU approved by the Commission. The energy available from PSEB’s own generation (Ex-bus) as discussed above is 22082 MU (12999 + 9083) based on actuals for 2003-04. The actual energy purchased to meet the demand is 8603 MU net or 8945 gross. The details of energy purchase requirement as per PSEB in ARR 2003-04, approved by the Commission for the year 2003-04, the pre-actuals as furnished by PSEB, with sales now approved and actual availability and energy required to be purchased with sales now approved by the Commission and with the norms for T&D loss fixed by the Commission are given in Table 3.4 below:

Table 3.4
Energy Balance 2003-04

SI. No.	Particulars	As per PSEB in ARR 2003-04	Approved by the Commission in T.O. 2003-04	Pre-actuals as furnished by PSEB	With sales now approved and actual availability	With Commission’s now approved sales, generation & norms for T&D loss
(1)	(2)	(3)	(4)	(5)	(6)	(7)
	A) Energy Requirement
1.	Meter Sales	15600	15965	16067	16067	16067
2.	Sales to Agriculture	6288	5707	6243	5744
3.	Total Sales within the State	21888	21672	22310	21811	21811
4	Loss Percentage	26%	24.50%	25.33%	27.00%	24.50%
5.	T&D Losses	7690	7033	7568	8067	7078
6.	Sales to Common Pool consumers	340	340	381	381	381
7.	Sales outside State	460	460	426	426	426
8.	Total Requirement	30378	29505	30685	30685	29696
	B) Energy Available
9.	Own generation (Ex-bus)
10.	Thermal	12560	12796	12999	12999	12999
11.	Hydro	3228	3921	4261	4261	4261
12.	Share from BBMB (incl share of common pool consumers).	3900 (Common pool=340)	4337 (Common pool=340)	4822 (Common pool=381)	4822 (Common pool=381)	4822 (Common pool=381)
13.	Purchase Net	10690	8451	8603	8603	7614
14.	Total available	30378	29505	30685	30685	29696



With sales (including agricultural) and generation now approved and T&D loss at 24.50% approved by the Commission, the required energy purchase (net) works out 7614 MU. Thus higher T&D losses than the T&D losses approved by the Commission, resulted in an increase in purchase to the extent of 989 MU. The Commission disapproves the additional purchase of 989 MU net necessitated on account of higher T&D losses than approved by the Commission. The Commission thus approves power purchase of 7614 MU net. This matter is discussed further in para 3.9.

B.       EXPENSES

3.8       FUEL COST

The Board projected fuel cost of Rs.2119.50 crore for generation of 13720 MUs for the year 2003-04. The Commission approved the fuel cost at Rs.1899.04 crore for a gross thermal generation of 13978 MU. The approved fuel cost is given below in Table 3.5.

Table 3.5
Approved fuel cost in the Tariff Order

Sr. No.	Station	Gross generation (MU)	Fuel Cost (Rs. crore)
1.	GNDTP	2207	351.51
2.	GGSTP	8649	1126.16
3.	GHTP	3122	421.57
4.	Total	13978	1899.04



As discussed in para 3.4.1 there was an increase of 257 MU gross in thermal generation. The station-wise gross thermal generation approved by the Commission and the actual gross generation for the year 2003-04 is given below in Table 3.6.

Table 3.6
Gross thermal generation for 2003-04

Sr. No.	Station	Approved by the Commission	Pre-actual furnished by PSEB
1.	GHDTP	2207	2551
2.	GGSTP	8649	8304
3.	GHTP	3122	3380
	Total	13978	14235



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 3.7.

Table 3.7
Fuel cost for 2003-04

Sr. No.	Station	Approved by the Commission	For pre-actual generation
1.	GNDTP	351.31	406.07
2.	GGSTP	1126.16	1081.24
3.	GHTP	421.57	456.41
	Total	1899.04	1943.72



The Commission accepts the fuel cost as Rs.1943.72 crores for actual generation of 14235 MU for the revised ARR for 2003-04.

3.9       COST OF POWER PURCHASE

As discussed in para 3.5 the pre actual gross purchases for the year 2003-04 as furnished by PSEB is 8945 MU including unscheduled interchange (UI) of 448 MU. The actual power purchase cost as furnished by the PSEB for the year 2003-04 is Rs.1473.82 crores.

The station/source-wise purchase approved by the Commission and actual purchases made and furnished by PSEB with costs are given in Table – 3.8 below:

Table 3.8
Power Purchase

Si. No.	Source	As Approved by the PSERC for 2003-04		Pre-actuals 2003-04 By PSEB in ARR 2004-05
		Power Purchases (MU)	Cost (Rs. Crores)	Power Purchases (MU)	Cost (Rs. Crores)
I	NTPC
1.	Anta	351	57.64	306	53.84
2.	Auraiya	588	111.36	456	82.53
3.	Dadri Gas	906	205.07	674	126.79
4.	Singrauli	1475	190.84	1627	164.79
5.	Rihand	762	132.42	894	128.01
6.	Unchachar-1	257	56.19	264	47.15
7.	Unchachar-II	429	99.59	460	77.69
II	NHPC
8.	Salal	813	76.70	908	61.68
9.	Bairasuil	359	33.86	306	26.58
10.	Tanakpur	81	10.31	78	9.26
11.	Chamera-1	214	30.21	245	33.96
12	Chamera-2	40	12.64	63	14.97
13.	Uri	289	84.70	388	95.32
III	NPCIL
14.	NAPP	348	92.57	343	102.44
15.	RAPP	191	65.99	206	67.21
16.	Wheeling charges to PGCIL	Considered in total cost of individual CGS	Considered in total cost of individual CGS	----	123.60
17.	ULDC charges	----	10.00	----	10.65
18.	NRLDC charges	Considered in total cost of individual CGS	Considered in total ocst of individial CGS	----	0.88
	Total (1+18)(CGS)	7103	1270.09	7218	1266.35
IV	Co-generation	120	41.76	122	42.59
V	Jalkheri	40	13.92
VI	Banking
19.	HPESB	120	30.0	195	44.76
20.	Jammu and Kashmir	160	37.12	260	59.25
21.	UPCL	180	41.40	108	24.73
VII	PTC	----	----	392	80.00
22.	NVVNL	----	----	19	4.39
23.	Eastern Region	800	179.20	49	8.79
VII	New Projects				&nsp;
24.	NJPC	210	60.27	134	28.62
25.	Tehri	93	29.39
26.	Net UI			448	-45.66
27.	Others	----	----	----	----
	G.Total	8826	1703.15	8945	1473.82



For the year 2003-04, the pre-actuals cost for power purchase of 8945 MU gross (8603 MU net) is Rs.1473.82 crores. The overall power purchase costs are lower than levels approved in the Order of the Commission by Rs.229.33 crores. This is inspite of the fact that quantum of power purchase is more than the level approved by the Commission. PSEB has stated that power purchase expenditure is considerably lower due to judicious purchases by the Board and effective utilization of ABT mechanism. This is clear from the power purchase of 448 MU made by PSEB under UI. For purchase of the 448 MU, PSEB would have spent 86.45 crore, at the average rate approved by the Commission in the Tariff Order 2003-04 whereas PSEB has actually received payment of Rs.45.66 crore under UI thus making total saving of Rs.132.11 crore (45.66+86.45). However, the Commission is of the opinion that the cost of power purchase including purchase under UI is not entirely within the control of PSEB. This is supported by PSEB’s own contention that to meet the energy demand during paddy months of 2004-05, Board has purchased power under UI at much higher rate. In view of this, the Commission considers that ordinarily neither penalty nor incentive be imposed on PSEB regarding cost of power purchase when such purchase is done judiciously and on merit. The Commission has, therefore, considered the average rate of power purchase actually obtained for allowing power purchase cost for the accepted quantum of power purchase.

In para 3.7, Commission has disapproved additional power purchase to the extent of 989 MU net on account of higher T&D losses than approved by the Commission and has allowed power purchase of 7614 MU net. The gross power purchase allowed works out to be 7917 (7614x 8945 / 8603) MU. The proportionate cost of this power at the average rates actually obtained during 2003-04 will be Rs.1304.44 crore (1473.82 x 7917 / 8945).

The Commission thus accepts the cost of power purchase as Rs.1304.44 crores for accepted power purchase of 7614 MU net (7917 MU gross).

3.10       EMPLOYEES COST

The PSEB had projected the employee costs at Rs.1461.42 crores, net after capitalization in the ARR for the year 2003-04.

In the Tariff Order for the year 2002-03, the Commission had approved the employees cost for that year at Rs.1250.13 crores. Simultaneously, the Commission had ordered capping of the employees cost at the same level for the year 2003-04 as well. In the truing up exercise for the year 2002-03, the approved level of employees cost for the year 2002-03 has been revised to Rs.1274.66 crores. The Commission has also allowed the cap on the employees cost for the year 2003-04 to be revised at this level. The enhancement in employees cost for the year 2002-03 has been allowed by the Commission as the base level was originally worked out estimating capitalization at the level of the year 2000-01. While the gross expenditure on employees cost for the year 2002-03 remained well below the level approved by the Commission for that year, it was the capitalization amount which was less than the level assessed by the Commission thus resulting in excess in the net employees cost. However, as capitalization amount is determined by the basic principles governing such classification, the Commission has considered the Board’s plea and allowed the base level to be revised to Rs.1274.66 crores. The cap on employees cost for the next year i.e.2003-04 is also revised to this level.

The PSEB has given various justifications for excess in the employees cost over the level approved by the Commission. The Board has also enumerated the steps taken by it to control the expenditure under this head. However, the Commission is not satisfied with the steps being taken by the Board and notes that most of the steps remain on paper and are in fact old steps already in place for number of years. The employees cost in the Board is one of the highest in the country both in terms of cost per unit sold and manpower per connection.

The Commission finds no justification for allowing any increase in the level of employees cost for the year except the increase in base level already allowed for the year 2002-03 in the truing up exercise for the year under Chapter-2, para 2.10. The matter regarding Employees Cost is also discussed in greater detail in para 7.11 of Chapter-7.

The Commission thus retains the employees cost at the capped level of Rs.1274.66 crores for the year 2003-04.

3.11       OPERATION & MAINTENANCE EXPENSES

The PSEB had projected the Operation & Maintenance expenses at Rs.251.94 crores in its ARR for the year 2003-04 by assuming 9% growth on the plea that historically this cost had been growing at 8.64% during the FY 1999-2002. It was stated that assumed growth was kept higher than the CAGR over the past years keeping in view the expensive investment programme planned by the Board over the future years and the inadequate maintenance carried out during the past two years due to financial constraints. It was further stated by the Board that the projected estimate worked out to about 1.94% of Gross Fixed Assets against the CEA approved norms of 2.5% for the new stations.

The Commission had approved these expenses at Rs.236.16 crores by assuming 6% inflation over the actuals of Rs.214.02 crores supplied by the Board for the year 2001-02.

The Commission had approved these expenses at Rs.236.16 crores by assuming 6% inflation over the actuals of Rs.214.02 crores supplied by the Board for the year 2001-02.

As per ARR for the current year 2004-05, the pre-actuals of O&M cost are shown at Rs.189.66 crores.

The Commission, therefore, now approves an amount of Rs.189.66 crores as an expense towards O&M costs for the year 2003-04.

3.12       ADMINISTRATION & GENERAL EXPENSES

The PSEB had projected the Administration & General expenses at Rs.40.10 crores, net of capitalization for the year 2003-04 after factoring in a saving of Rs.10 crores. The increase sought for in this cost element was about 8% over the approved limit of Rs.37 crores for the year 2002-03. This level of expenditure of Rs.40.10 crores was allowed by the Commission.

In its ARR for the year 2004-05, the PSEB has indicated pre-actuals of this cost at Rs.45.71 crores, net after capitalization.

The sub-head wise details of expenses for the year 2003-04 as projected by the PSEB, approved by the Commission and the pre-actuals as depicted in the ARR for the year 2004-05 are tabulated in Table 3.9 below :-

Table 3.9
Administration & General Expenses

Sr. No.	Particulars	As projected by PSEB	As approved by PSERC	Pre-actuals as per ARR 04-05
1.	Rent, Rates & Taxes	3.76	3.76	2.34
2.	Insurance	2.51	2.51	1.15
3.	Telephone, Postage & Telegrams	6.26	6.26	5.93
4.	Consultancy fees	----	----	0.20
5.	Technical fees	----	----	0.01
6.	Other Professional charges	----	----	0.03
7.	Conveyance and Traveling	13.78	13.78	12.11
8.	Electricity & Water charges	8.14	8.14	10.39
9.	Others	18.79	18.79	14.74
10.	Freight	----	----	0.76
11.	Other material related expenses	9.40	9.40	8.14
	Total Expenses	62.64	62.64	55.80
Add	BBMB’s share	----	----	1.88
Less	Anticipated Savings	10.00	10.00	----
Less	Capitalised	12.54	12.54	12.18
	Net expenditure	40.10	40.10	45.50
Add	Prior period items	----	----	0.21
	Net charged to Revenue	40.10	40.10	45.71



Evidently, the PSEB has not been able to achieve the target of effecting economy in A&G expenses factored in by the Board itself suo-moto in the revenue expenditure for the year 2003-04. There is an excess of Rs.5.61 crores which comes to about 14% over and above the approved expenditure of Rs.40.10 crores. The excess over the limit approved by the Commission for the year 2003-04 has not been explained by the Board.

In the absence of any justification, the Commission retains approved level of expenditure of Rs.40.10 crores under this head for the year 2003-04.

3.13       DEPRECIATION

In its ARR for the year 2003-04, PSEB had claimed depreciation of Rs.706.85 crores for the year 2003-04 based on gross fixed assets of Rs.13087.71 crores at the beginning of the year. Against this, the Commission had approved depreciation of Rs.683.70 crores on the basis of percentage rates of function-wise depreciation worked out as per annual audited accounts for the year 2001-02. This was on the asset value of Rs.13087.71 crores at the beginning of the year as proposed by the Board.

Now in the ARR for the year 2004-05, PSEB has revised the depreciation amount to Rs.549.06 crores for the year 2003-04 on the revised value of gross fixed assets of Rs.12920.61 crores at the beginning of the year 2003-04.

The depreciation charges as furnished/projected by PSEB for the years 2002-03, 2003-04 (RE) are detailed in the Table 3.10 below:

Table 3.10
Depreciation

Fin. Year	As per ARR for the year	As approved by the Commission	Now revised by the PSEB in ARR 2004-05
2002-03	829.80	641.35	564.17
2003-04	706.85	683.70	549.06



Value of assets, actual depreciation charges, percentage of depreciation charges to the value of assets during the last four years as per accounts and those proposed for the year 2003-04 are tabulated in Table 3.11 below:

Table 3.11
Depreciation

As on	Assets	Depreciation	% to AssetsM
1.4.1999	6349.73	420.30	6.61%
1.4.2000	6841.62	467.52	6.83%
1.4.2001	11580.78	581.91	5.02%
1.4.2002	12548.93	564.17	4.50%
1.4.2003	12920.61	549.06	4.25%



The function-wise depreciation as approved by the Commission at the time of issuing Tariff Order for the year 2003-04 based on the percentage rates of depreciation worked out from the audited accounts for the year 2001-02 is given in Table 3.12 below.

Table 3.12
Depreciation

Particulars of assets	Assets as on 31.3.02	Depreciation For FY 02-03	Rate %	Assets as on 31.3.03	Depreciation For FY 03-04	Rate %
Thermal	2748.73	178.39	6.49	2748.73	178.39	6.49
Hydro	5564.75	148.02	2.66	5570.10	148.16	2.66
Transmission	1356.01	116.35	8.58	1636.01	140.37	8.58
Distribution	2740.02	196.73	7.18	2993.45	214.93	7.18
Others	139.42	1.86	1.33	139.42	1.85	1.33
Total	12548.93	641.35	5.11	13087.71	683.70	5.22



The rates of depreciation have been prescribed by the Govt. of India on the basis of assets i.e Buildings, Hydraulic works, Civil works, Plants & machinery, Lines & cables, Vehicles, Furniture & fixtures etc. These rates are uniformly applicable to all state electricity boards and as such, are also being followed/ adopted by the PSEB. Since PSEB has not completed assets register despite Commission’s specific directives in the last two Tariff Orders in this regard, it is not possible at this moment to verify the correct amount of depreciation based on the prescribed rates as per Govt. of India instructions.

The function-wise depreciation for the year 2002-03 as per audited accounts and the depreciation as claimed by the PSEB now (revised) for the year 2003-04 in the ARR is given in Table 3.13 below.

Table 3.13
Depreciation

Items	Assets as on 1.4.02	Depreciation FY 02-03	Rate %	Assets as on 1.4.03	Depreciation FY 03-04	Rate %
Thermal	2748.73	150.80	5.48	2800.33	146.12	5.22
Hydro	5564.75	147.97	2.65	5583.21	129.65	2.32
Transmission	1356.01	78.64	5.80	1398.75	78.11	5.58
Distribution	2740.02	184.94	6.75	2998.90	193.35	6.45
Others	139.42	1.82	1.34	136.74	1.83	1.34
Internal Combustion	2.68	-	-	2.68	-	-
Total	12548.93	564.17	4.50	12920.61	549.06	4.25



The value of gross fixed assets as on 31.3.2003/1.4.2003 is to the tune of Rs.12920.61 crores as per audited accounts for the year 2002-03. Based on this value, PSEB has submitted revised claim of depreciation of Rs.549.06 crores which works out to 4.25% (which is lesser by 0.25 % than that of FY 2002-03) of the value of GFA for the year 2003-04.

Keeping in view the percentage of actual depreciation charges to the value of assets during the preceding years as depicted above, it can be concluded that the depreciation charges claimed by the Board in its ARR for the year 2004-05 are reasonable and worth acceptance.

The Commission, therefore, approves depreciation of Rs.549.06 crores for the financial year 2003-04 on actual basis.

3.14   INTEREST AND FINANCE CHARGES

PSEB projected the interest and finance charges at Rs.1447.45 crores before capitalization of interest charges of Rs.176.20 crores for the year 2003-04. The net amount of interest and finance charges was projected at Rs.1271.25 crores. The Commission had approved Rs.1218.76 crores before capitalization of Rs.122.60 crores. The net amount of interest and finance charges was Rs.1096.16 crores out of which Rs.100.00 crores were disallowed on account of interest on the amount of capital funds diverted for revenue expenditure. As such, the amount of interest and finance charges actually allowed worked out to Rs.996.16 crores.

The amount of interest proposed by PSEB in the ARR for the year 2003-04, approved by the Commission and the revised estimates for the year 2003-04 as per ARR for the year 2004-05 are given in Table 3.14 below:

Table 3.14
Interest and Finance Charges

Item	Proposed by PSEB for FY 2003-04	Approved by Commission for FY 2003-04	Revised estimates by PSEB for FY 2003-04
SLR Bonds	21.58	21.17	21.20
Non SLR Bonds	268.85	267.11	220.16
LIC	106.60	106.63	118.59
REC	73.72	64.75	75.96
Comm. Banks	7.47	7.19	33.95
Bills Discounting	1.69	----	1.60
Lease Rental	36.58	36.58	36.58
PFC	145.08	62.24	59.81
GPF	123.56	100.81	86.75
CSS	2.66	2.63	7.71
WCL	59.38	44.36	37.54
RDF	2.00	----	----
Fin. Charges	44.40	22.20	9.80
Others	----	----	3.26
Total	893.57	735.67	712.91
State Govt. Loans	553.88	483.09	483.09
Grand Total	1447.45	1218.76	1196.00
Less Capitalization	176.20	122.60	55.21
Total	1271.25	1096.16	1140.79

3.14.1    Working capital

The Commission in its tariff order dated May 23, 2003 had approved the working capital requirement at Rs.428 crores for the year 2003-04. While revising the estimates of interest charges to Rs.37.54 crores on working capital loans, the PSEB has also now revised the working capital requirement to Rs.460 crores in place of Rs.428 crores already allowed by the Commission. PSEB has given no plausible reason for projecting higher working capital loans. In the absence of any justification, the Commission retains the amount of working capital loan requirement at the level already approved viz. Rs.428 crores only. The interest is proportionately reduced to Rs.34.93 crores in place of Rs.37.54 crores. Necessary adjustment of Rs.2.61 crores is being made in the interest charges to be allowed for the year 2003-04.

3.14.2    Interest on Government Loans

During the year 2003-04, PSEB proposed neither any new loans nor repayment of earlier government loans. As such, the interest on government loans was approved at the same level as was approved for the year 2002-03. The interest on government loans for the year 2002-03 as per audited accounts is Rs.551.52 crores. Out of this amount, interest of Rs.70.79 crores was deducted by the Commission at the time of issuing tariff order for the year 2003-04 on account of share of irrigation department relating to RSDP. Thus, interest of Rs.480.73 (551.52-70.79) crores only was allowable to PSEB whereas Rs.483.09 crores was allowed for the year 2003-04.Therefore, Rs.2.36 (483.09-480.73) crores which were allowed in excess will be deducted now from the amount of interest to be allowed for the year 2003-04.

3.14.3    Capitalization of interest

PSEB had estimated capitalization of interest charges at Rs.176.20 crores for the year 2003-04. This amount was estimated by the Board in the ratio of works in progress to total capital expenditure. The Commission, however, approved an amount of Rs.122.60 crores towards capitalization of interest charges. PSEB has now revised the amount of capitalization of interest charges to Rs.55.21 crores in the ARR for the year 2004-05. The reason for shortfall in the amount of capitalization of interest charges is less capital expenditure i.e. Rs.545 crores only against the expenditure of Rs.1965 crores estimated by the Board in the first instance.

The Commission in its Tariff Order of May 23, 2003 had accepted the estimate of capitalization of interest charges in the ratio of net works in progress to total capital expenditure excluding the interest charges on working capital in the year 2003-04. Adopting the same principle, capitalization of interest charges works out to Rs.50.55 crores only.

The Commission, therefore, now allows capitalization of interest charges of Rs.50.55 crores for the year 2003-04.

3.14.4    Subsidy Paid by Government of Punjab

Out of a total receivable subsidy of Rs.857 crores payable by the Government of Punjab to PSEB for AP & DS (SC) category of consumers, an amount of Rs.837.69 crores only has been paid / adjusted by the Government of Punjab for the year 2003-04, leaving a balance of Rs.19.31 crores which is still payable by the Government to the Board. The impact of unpaid subsidy has been dealt in para 7.15.7 of Chapter-7.

PSEB has now supplied a copy of provisional accounts for the year 2003-04. As per provisional accounts, the Board has incurred Rs.1192.56 crores on interest and finance charges before capitalization during the year 2003-04. Thus, out of the total amount of interest and finance charges of Rs.1192.56 crores, Rs.4.97 (2.61+2.36) crores will be deducted as discussed above. This will bring down the amount of interest to Rs.1187.59 crores. The net interest and finance charges after capitalization of Rs.50.55 crores will work out to be Rs.1137.04 crores.

At the time of issuing Tariff Order for the year 2003-04, the Commission had asked PSEB to explain its position about diversion of capital funds towards revenue expenditure during the year 2002-03. PSEB has not given satisfactory reply to this query. Therefore, the earlier decision of the Commission to disallow Rs.100.00 crores from the amount of interest and finance charges stands. With this disallowance, the net interest and finance charges allowable to the board work out to Rs.1037.04 crores only for the year 2003-04.

In view of this, the Commission approves interest and finance charges of Rs.1087.59 crores (gross) and Rs.1037.04 crores (net) after capitalization of Rs.50.55 crores.

3.15    NET FIXED ASSETS AND RETURN

PSEB had claimed 3% return on net fixed assets of Rs.7326.33 crores which worked out to Rs.219.79 crores for the year 2003-04. The return on net fixed assets approved by the Commission was Rs.222.76 crores as the Commission had determined the value of net fixed assets at Rs.7425.47 crores due to decrease in accumulated depreciation at the time of issuing the Tariff Order for the year 2003-04.

Now in the ARR for the year 2004-05, PSEB has depicted the return at Rs.219.71 crores on pre-actual basis for the year 2003-04. The return on net fixed assets as approved by the Commission for the years 2002-03, 2003-04 and pre-actuals furnished by PSEB for the year 2003-04 are given in the Table 3.15 below:

Table 3.15
Net Fixed Assets and Return <

Sr. No.	Particulars	FY 02-03 Approved	FY 03-04 Approved	FY 03-04 (Pre-actuals)
1.	Original cost of fixed assets at the beginning of the year	12548.93	13087.70	12920.61
2.	Less Accumulated Depreciation	3803.06	4444.41	4367.23
3.	Net Balance	8745.85	8643.29	8553.38
4.	Less Consumers Contribution	1067.82	1217.82	1229.73
5.	Net Fixed Assets at the beginning of the year	7678.05	7425.47	7323.65
6.	Reasonable Return @3% of NFA	230.34	222.76	219.71



The audited accounts for the year 2002-03 are available and the value of fixed assets at the beginning of the year 2003-04 is Rs.12920.61 crores and the accumulated depreciation upto 2002-03 is Rs.3803.06 crores. After adding the depreciation of Rs.564.17 crores for the year 2002-03, the accumulated depreciation works out to be Rs.4367.23 crores. The value of net fixed assets after deduction of accumulated depreciation and consumer contribution of Rs.4367.23 crores and Rs.1229.73 crores respectively works out to be Rs.7323.65 crores as above. The return @3% on the NFA comes to Rs.219.71 crores which is the same as claimed by PSEB. The Commission had earlier approved return of Rs.222.76 crores which is in excess by Rs.3.05 crores as compared to the pre actuals. The Commission does not allow this excess return.

The Commission, therefore, approves an amount of Rs.219.71 crores as return on net fixed assets for the year 2003-04.

C.    MISCELLANEOUS REVENUE (NON TARIFF INCOME)

As per ARR for the year 2003-04, PSEB had estimated the Miscellaneous Revenue (Non Tariff Income) of Rs.260.41 crores. The reduction in income was on account of exclusion of 15% surcharge on Railway freight on coal for which PSEB had engaged a private firm and the freight was booked to accounts net of surcharge. Against these estimates, the Commission had approved income of Rs.331.47 crores after adding 10% increase to the approved non tariff income for the year 2002-03.

PSEB in its ARR for the year 2004-05 has now submitted the pre-actuals of Rs.319.07 crores for miscellaneous receipts for the year 2003-04. These pre-actuals comprise actual non-tariff income from April 2003 to February 2004 i.e; for eleven months and pre-actuals for the month of March 2004 and as such, are quite near to the actual non-tariff income for the year. However, this non-tariff income is less by Rs.12.40 crores as compared to the approved non tariff income for the year 2003-04.

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 2003-04.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 tightening 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 level of Rs.331.47 crores in spite of actuals being on lower side.

3.16    REGULATORY ASSET

In the tariff order for the year 2003-04, the Commission had determined the revenue gap of Rs.487.10 crores inclusive of gap of Rs.324.94 crores for the year 2002-03. Out of this combined gap of Rs.487.10 crores, the Commission created a Regulatory Asset of Rs.150 crores which was to be recovered along with carrying costs in equal proportion from consumers and PSEB in two years viz.; 2004-05 and 2005-06. The balance gap of Rs.337.10 crores plus carrying cost of Rs.14.07 crores on the Regulatory Asset was allowed to be recovered through tariff in the year 2003-04. The Regulatory Asset of Rs.150 crores gets automatically liquidated since the revenue receipts through tariff are more than the revenue requirements determined by the Commission for the year 2003-04. The effect of carrying cost of Rs.14.07 crores already allowed is also absorbed in the total revenue earned through tariff for the year 2003-04.

3.17    REVENUE FROM SALE OF POWER 2003-04

In its ARR, PSEB had projected revenue from sale of power at Rs.6299 crores including subsidy of Rs.857 crores for AP & DS (SC) categories of consumers from the Government of Punjab. Against this amount, the Commission had approved revenue from sale of power at Rs.6537.57 crores inclusive of subsidy. The Board revised the estimates of revenue from sale of power in the ARR for the year 2004-05 to Rs.6813 crores including subsidy of Rs.857 crores.

According to the provisional accounts, the revenue from sale of power at existing tariff works out to Rs.6949.24 (6111.55+837.69) crores. These figures include non tariff income of Rs.145.42 crores, such as meter rent/service rent, recoveries from theft of power, wheeling charges and some component of miscellaneous charges viz; Rs.107.77 crores, Rs.18.61 crores, Rs.0.68 crores and Rs.18.36 crores respectively. These charges of Rs.145.42 crores are deducted from the amount of revenue from sale of power as shown in the accounts and accounted for in the appropriate head viz; other income. In addition, subsidy of Rs.19.31 crores which is still receivable from the Government of Punjab has been included in the amount of sale of power. Thus, revenue from existing tariff comes to Rs.6823.13 crores.

The Commission, therefore, approves the revised amount of revenue from existing tariff at Rs.6823.13 crores for the year 2003-04.

D.    REVENUE REQUIREMENT

The summary of the review for the year 2003-04 as analyzed in the paragraphs above is as under:



Sr. No.	Item of expense	Approved by Commission in tariff order for 2003-04	Revised by PSEB in ARR for 2004-05 (pre-actuals)	Final Approval by Commission
1	Cost of Fuel	1899.04	2011.00	1943.72
2	Cost of power purchase	1703.15	1474.00	1304.44
3	Employee costs	1250.13	1395.47	1274.66
4	O&M expenditure	236.16	189.66	189.66
5	Administrative and General expenses	40.10	45.71	40.10
6	Depreciation	683.70	549.06	549.06
7	a) Interest charges	1096.56	1186.20
	b) Finance charges	22.20	9.80
	Sub-total(a+b)	1118.76	1196.00	1087.59
	c) Interest capitalized	(-) 122.60	(-) 55.21	(-) 50.55
	Net Intt. & Fin. Charges	996.16	1140.79	1037.04
8	Return on NFA @3 %	222.76	219.71	219.71
9	Total revenue requirement	7031.20	7025.40	6558.39
10	Less Other income (non -tariff income)	331.47	319.07	331.47
11	Net revenue requirement	6699.73	6706.33	6226.92
12	Revenue from tariff	6537.57	6537.57	* 6823.13
13	Gap(11-12)@	162.16	(-)106.67	(-) 596.21
14	Add prior period recovery	324.94	324.94	333.78
15	Net Gap@	487.10	218.27	(-) 262.43
16	Regulatory Asset	(-)150.00	(-)150.00
17	Interest allowed on Regulatory Asset	14.07	----	----
18	Balance Gap@	351.17	68.27




* As per provisional accounts for 2003-04, revenue from sale of power is Rs.6111.55 crores which includes non tariff income of Rs.145.42 crores, such as, meter rent/service rent, recoveries from theft of power, wheeling charges and partly misc. charges viz. Rs.107.77 crores, Rs.18.61 crores, Rs.0.68 crores and Rs.18.36 crores respectively. This amount of Rs.145.42 crores has been excluded from revenue from sale of power and instead accounted for in other income. However, the amount of Govt. subsidy of Rs.857.00 crores - shown as separate and distinct element in the balance sheet has been included in revenue from sale of power which totals to Rs.6823.13 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.


It is noted from the review account for the year 2003-04 that there is net surplus amount of Rs.262.43 crores with PSEB for the year 2003-04 after adjustment of revenue gap of Rs.333.78 crores for the year 2002-03. In the Tariff Order for the year 2003-04, the Commission had created a Regulatory Asset of Rs.150.00 crores to be recovered along with carrying costs in equal proportions from consumers and PSEB in two years viz; 2004-05 and 2005-06. This Regulatory Asset gets automatically liquidated as revenue receipts of PSEB for the year 2003-04 are more than its revenue requirement as determined by the Commission. It is pertinent to mention here that the revenue at existing tariff amounting to Rs.6823.13 crores also includes effect of prior period recovery of Rs.324.94 crores allowed by the Commission in the Tariff Order for the year 2003-04. The net surplus amount of Rs.262.43 crores is being carried forward to next year for adjustment/usage.

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