7 ERC for BESCOM - Karnataka€¦ · · 2016-10-22Chapter-7 : ERC for BESCOM Page 116 ERC for ......

Karnataka Electricity Regulatory Commission Tariff Order 2003 __________________________________________________________________________________________________________________________

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Chapter-7 : ERC for BESCOM 16

ERC for BESCOM

7.1 Introduction

1. BESCOM came into existence on 1.6.2002. The Commission had issued a

provisional Retail Supply License to BESCOM on 29.5.2002 and later a regular

Distribution and Retail Supply Licence has been issued for a period of 5 years

vide Order dated 28.1.2003. BESCOM has a service area that comprises of

six districts: Bangalore Urban, Bangalore Rural, Kolar, Tumkur, Chitradurga

and Davangere, which covers an area of 41,092 sq. kms with a population

of about 168 lakhs. The Company has two zones : Bangalore Metropolitan

Area Zone (BMAZ) and Bangalore Rural Area Zone (BRAZ) which is further

sub divided in to 24 O&M divisions. The total customer base is about 44 lakhs

and the total turn over is about Rs.2600 crores, with an asset base of about

Rs.1171 crores. Following table shows the number of consumers, sales and

revenue among different customer classes.

Table-61

Summary Profile of BESCOM in FY02

Customer class

Number of

consumers

(`000)

Sales

(MU)

Revenue

(Rs.crores)

Domestic 3333.79 2024 583.42

Commercial 390.21 366 215.30

Irrigation 455.06 3201 176.09

LT Industries 112.47 791 342.85

Water supply 19.14 143 52.52

Street Lighting 17.76 180 47.62

Temporary Consumers 15.93 24 20.48

HT-Water supply & agriculture 0.07 330 97.38

HT-Industrial 1.61 1247 540.25

HT-Commercial 0.81 308 163.45

HT-Residential 0.10 46 16.88

4346.95 8660 2256.24

7


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Chapter-7 : ERC for BESCOM Page 117

2. Domestic consumers account for 77% of the total providing 26% of the

revenue and 23% of the sales. A major share of sales is from irrigation sector

which consists of about 10.5% of consumers contributing about 8% of the

revenue while accounting for 37% of sales. The industrial class accounts for

about 24% of the sales but about 39% of the revenue.

3. The company’s objective is to provide quality service to its consumers. The

mission statement of the Company as provided in the filing is as follows:

“The Mission of Bangalore Electricity Supply Company Limited is to

ensure complete customer satisfaction by providing its customers

quality, reliable power at competitive rates.

BESCOM is set to achieve this mission through :

Best practices in the construction and maintenance of its

distribution network

High standards in customer service

Optimum usage of technical and human resources”

7.2 ERC for FY03 - Analysis

7.2.1 Sales forecast

1. BESCOM has estimated the metered sales for FY03 on prorata basis

considering the FY03 half yearly sales in DCB. Accordingly, the metered

sales are estimated at 5568 MU for FY 03. Compared to this, actual sales for

the first 9 months as per the DCB of December-02 is 4146 MU.

2. BESCOM has estimated the sales to unmetered class (BJ, IP sets and street

lighting) based on average consumption per installation. The total

estimated consumption for IP sets based on the sampling of DTCs for the

period from April 02 to October 02 is 2017 MU (excluding LT 4(c)). BESCOM

has estimated the sales for the balance year (Nov. 02 to March 03) at 12%

higher than corresponding months during previous year. LT line losses at


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10% is applied to arrive at the estimated consumption for FY03. Thus, the

total estimated consumption for IP set (excluding LT 4(c)) as per filing is 3293

MU. This works out to 6865 kWh per IP set for FY03. As mentioned in the

Chapter-6, the Commission notes that the above figure is arrived at by

considering the number of installations at the end of the year instead of

mid year. Correcting for this, the specific consumption would be 7055

kWh/IP set for FY03.

3. The consumption for BJ/KJ installations has been estimated by BESCOM at

18 kWh/month totalling 114 MU. The estimated street lighting consumption

by BESCOM is 198 MU. The total sales to unmetered class is estimated by

BESCOM as 3605 MU .

4. After examining the methodology of sales estimation for FY 03, the

Commission observed that estimates of sales did not include the sales to

installations regularised prior to ATL implementation as these installations

were included in the filing only after it was pointed out by the Commission.

But this does not apply to IP sets as the sales to this category is estimated

based on monthly sampling, which duly considered the regularised

installations. In the revised filing, BESCOM did not change the sales

estimates on the grounds that, due to the restrictions in supply, sales

estimates would remain the same.


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5. Category wise sales is indicated in table below:

Table-62

Sales Estimates for FY03

Category Type of installation

FY 02 as per

present filing (MU)

FY 03 as per Split

ERC (MU)

FY 03 Revised

filing (MU)

% Growth over FY

02

LT 1(a) Bhagyajyothi/KutirJyothi 104 126 114 9.62

LT 2(a)&(b) Domestic/AEH 1920 2228 2075 8.07

LT-3 Commercial 366 431 408 11.48

LT-4(a) & (b) IP sets unmetered (less than 10 HP) 2949 3383 3279 11.19

LT-4(c) IP sets above 10 HP 2 2 4 100

LT-4(d) Private Horticulture nurseries, Coffee and Tea Plantations 250 NA 14 -94.40

LT-5 Industrial, Non-industrial, Heating, Motive power 791 894 821 3.79

LT-6(a)&(b) Water Supply 143 166 173 20.98

LT-6(a)&(b) Street lighting 180 186 198 10.00

LT-7 Temporary consumers 24 24 28 16.67

Sub Total LT 6729 7440 7114 5.72

HT-1 Public Water Supply 327 335 329 0.61

HT-2(a) Industrial, Non-industrial, & Non Commercial 1247 1330 1300 4.25

HT-2(b) Commercial 308 346 376 22.08

HT-3(a) & (b) Irrigation & Agricultural Farms, 3 2 2 -33.33

HT-5 Residential apartments and colonies 46 41 52 13.04

Sub Total HT 1931 2054 2059 6.63

Total 8660 9494 9173 5.92

Metered 5177 5799 5568 7.55

Unmetered 3483 3695 3605 3.50

7.2.2 Energy Loss

As discussed in Chapter-6, the distribution loss in FY03 as reported by

BESCOM is 25.58 %.


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7.2.3 Power purchase

The total energy input filed initially by BESCOM was higher by 6 MU

compared to the revised filing due to the revision in MUSS consumption by

KPTCL. In the initial filing, BESCOM has estimated the power purchase cost for

FY03 as Rs.2720.34 crores at the rate of Rs.2.206/kWh, instead of approved

Rs.2.149/kWh. This was later revised as indicated in the table below :

Table-63

Power Purchase Cost for BESCOM for FY03

Revised filing As per approved

in Split ERC

Energy input (MU) 12324 12817

BST + Transmission

Charge (Rs./kWh)

2.149 2.149

Power Purchase cost

(Rs. Crores)

2648.47 2750.14

7.2.4 Repairs and Maintenance

BESCOM has projected the repair and maintenance expenditure - close to

the Split ERC figure approved by the Commission - as Rs.37.72 crores, which

is stated as 10% increase over FY02 level. The actual R&M expenses for FY02

was Rs.34.29 crores and for the first 6 months of FY03 was Rs.19.87 crores.

BESCOM has stated that about 5059 transformers were repaired in the first 6

months and it is expected that about 7000 more would be repaired in the

balance year. BESCOM in their reply stated that, the expenses for the first 6

months are not a true reflection of the actuals as larger chunk of these

expenses take place in the last quarter of the financial year.

7.2.5 Employee costs

1. As per the clarifications furnished by BESCOM, the actual employee

expenses for FY02 was Rs.206.21 crores. BESCOM has filed an estimate for

FY03 of employee cost as Rs.239.93 crores at variance with the approved


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split ERC employee cost of Rs.220.60 crores. The reasons given for the

variation are:

i. higher share of DA (to the tune of 52% for 2nd & 3rd quarters and 54%

for last quarter),

ii. increase in terminal benefits based on the actuarial valuation as on

31.5.2002 and

iii. increase in other staff costs based on actual for FY02.

2. BESCOM has included the provision for bonus (Rs.3.02 crores) in the

employee costs by stating that, as all benefits presently enjoyed by the employees

are protected and hence ESCOMs are legally bound to continue these benefits

under the tripartite agreement among employees, KPTCL and the Government. In

the filing form D6A was not provided, stating that all employees are deputed from

KPTCL and exact number of employees will be known only when the options given

by the employees are finalised. Later, BESCOM has filed the number of employees

as 11,447.

3. The provision for terminal benefits has been made based on the actuarial

valuation report as on 31.5.2002. The Commission has observed during the

validation session that the provision for terminal benefits is inadequate

considering the actual situation. On this question the BESCOM has replied

that they are taking up this issue with KPTCL as well as GoK. BESCOM has

also provided a copy of the Government Order dated 19.12.2002 in which

Government has approved the option of ‘Pay-As-You-Go’ in respect of

terminal benefits to employees and it has been directed to make provision

for terminal benefits to employees effective from 1.6.2002. Therefore, the

provision that is required to be made in FY03 is for 10 months only. The

provision made in FY03 as per actuarial valuation report appears to be for 12

months instead of for 10 months. This may be reviewed and appropriate

provision be made while arriving at the actuals for FY03.


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7.2.6 Administration and General (A&G) Expenses

1. BESCOM has proposed 10% increase in A&G expenses for FY03 as Rs.22.10

crores compared to FY02 figure of Rs.20.09 crores. However, the approved split ERC

figure for FY03 for BESCOM is Rs.16.17 Crores. The reason stated for the increase is

the additional expenses for setting up of new offices and related expenses. The

Commission had directed in the Tariff Order 2002 that the KPTCL shall take all efforts

to limit the A&G expenses to the FY01 level. No reply has been provided by

BESCOM on the action taken to limit the A&G expenses. Many objectors have

objected to increase in the A&G expenses due to the additional overheads

consequent to formation of four distribution companies.

2. The Commission would like to reiterate the imperatives of controlling the

expenses under this head to achieve economy and prudence. The

Commission also notes that there may be some genuine reasons for

increases in A&G expenses due to the unbundling of distribution companies.

7.2.7 Depreciation

Depreciation has been estimated at 7.35% by applying the rates of

depreciation as in GOI notification. The depreciation provided for FY03 is

Rs.88.41 crores against Rs.94.12 crores approved in the Split ERC.

7.2.8 Other debits

BESCOM has stated that owing to the difficulty in estimating the other debits,

no provision has been made for this item and requested to pass through the

actuals in the future tariffs. In the Split ERC Commission had allowed Rs.5.14

crores under other debits. However the Commission is of the view that a

realistic attempt towards estimating the provision for this item needs to be

done.

7.2.9 Expenses capitalized


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The capitalization of expenses has been retained at the same amount of

Rs.1.65 crores as in FY02 as against the Split ERC figure of Rs.2.58 crores.

7.2.10 Net prior period charges and credits

Like the provision under Other Debits, no provision has been made on this

account. The Commission is of the view that ESCOMs individually are

capable of estimating this based on their past trends, which has not been

done.

7.2.11 Reasonable Return

Return amounting to Rs.19.15 crores has been provided by BESCOM at 3% of

net fixed assets at the beginning of the year as against the approved split

ERC figure of Rs.18.58 crores. The Commission notes that BESCOM is a

successor entity of the erstwhile KEB and therefore the principles laid down in

Section 59 of the Electricity (Supply) Act, 1948, would have to be applied in

the case of BESCOM as provided in the guidelines under Section 27(2) of

KERA.

7.2.12 Revenue Estimates for FY03

1. The revenue for FY03 was calculated based on the actual DCB up to 6

months properly adjusting for the impact of the tariff increase. Later BESCOM

has revised the estimates after validating the number of installations. The

Commission notes that the demand shown in the DCB for LT categories is

inclusive of interest on outstanding Demand. So the revenue estimated

based on the actual DCB on prorata basis will overestimate the current

demand projections. Since the financial year is not complete and the

actual figures are not available, the Commission finds it difficult to move

forward to estimate the level of revenue gap in FY03. As noted earlier, the

Commission has taken a serious view of the impact on revenue due to

change in number of installations and connected load.


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2. BESCOM has estimated the income from miscellaneous charges and non-

tariff income for FY03 as Rs.52.07 Crores and Rs.13.21 crores respectively.

7.2.13 Collection Efficiency

1. BESCOM has been providing the DCB statements every month to the

Commission. The latest DCB is of December 2002. Following table provides

comparison of collection efficiency in BESCOM for FY02 and FY03 (April to

December).

Table–64

Collection Efficiency in BESCOM

April - December

FY02

April - December

FY 03

Demand (Rs. Crores) 1680.61 1974.17

Collection (Rs. Crores) 1537.09 1718.57

Collection Efficiency (%) 91.46 87.05

2. Even though on an absolute level, the collection has increased, the

collection efficiency has come down substantially compared to the

corresponding months of the previous year. The Commission notes that this

has considerable impact on the working capital needs of the company. The

Commission has raised this issue during the validation sessions. BESCOM has

stated that the reduction in collection efficiency is mainly due to the

reduction in the collection from unmetered class. BESCOM has also pointed

out that the collections from Government installations (mainly LT Water

supply by Village Panchayaths) is poor as well as delayed.

3. The Commission notes that the demand for the unmetered class (BJ/KJ, IP

sets) for April-December months was Rs.232.87 crores where as the collection

is only Rs.39.25 crores showing a collection efficiency of about 17%, where

as the collection efficiency for metered class was about 97%. BESCOM has

stated that the collection efficiency after the tariff revision is over 97% for

metered class as shown below:


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Table-65

Collection Efficiency Under Metered Category

(Excluding LT-1and LT-4)

Month Demand

(Rs.crores)

Collection

(Rs.crores)

Collection

Efficiency

(%)

June 02 188.72 181.71 96.29

July 02 187.70 185.07 98.60

August 02 207.84 207.32 99.77

Sept. 02 207.86 192.13 92.43

October 02 203.51 201.69 99.11

Total 995.60 967.92 97.22

Source: Information provided by BESCOM

4. The above figures suggest that the collection from the unmetered class is

really pulling down the overall collection efficiency. The Commission notes

here that there is no concerted effort to improve the collection efficiency of

unmetered class which results in the poor collection overall. Besides the

Commission notes that the closing balance as at end of December 2002 is

Rs.1,025.31 crores which is about 4.7 months’ average demand. Out of this,

outstandings for the unmetered class such as IP sets (27 months), BJ (18.5

months), water supply (16 months), streetlights (10 months) is staggering.

7.2.14 Revenue from Subsidies

The total revenue deficit estimated by BESCOM for FY03 before subsidy is

Rs.418.72 crores. The total subsidy available from GOK for FY03 is stated as

Rs.1535 crores, out of which allocation to BESCOM is indicated as Rs.355.85

crores. Thus the gap after subsidy as per BESCOM’s filings, comes down to

Rs.62.87 crores.

7.2.15 Revised Revenue Requirement for FY03

The total revenue requirement as estimated by BESCOM is given below:


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Table-66

Revenue Requirements for BESCOM for FY03

Particulars FY 02 Split ERC Present

Filing Difference

Energy Available (MU) 12068 12817 12324 (4.93)

Energy sold (MU) 8659 10067 9173 (894)

Distribution Loss (%) 28.25 21.46 25.58 4.11

INCOME (Rs. crores)

Revenue from Sale of

Power 2299.86 2851.52

2675.40 (176.12)

Revenue Subsidy from

Government

743.82 316.48 355.85 39.37

Other income 13.21 31.14 13.21 (17.93)

TOTAL 3056.89 3199.14 3044.47 (154.67)

EXPENDITURE (Rs. crores)

Purchase of power 2556.77 2750.14 2648.47 (105.90)

Repairs and Maintenance 34.29 37.14 37.72 0.58

Employee Costs 207.86 220.60 239.93 19.33

A&G Expenses 20.09 16.17 22.10 5.93

Depreciation 80.14 94.12 88.41 (5.71)

Interest & Finance

charges 47.39 52.35

53.22

0.87

LESS:

Expenses capitalised (1.65) (2.58) (1.65) 0.93

Other Debits 94.45 5.14 0.0 (5.14)

Net Prior Period

Credits/charges (0.96) 3.10

0.00

3.10

Return on NFA 18.34 18.58 19.15 0.57

Total Expenses 3056.72 3194.76 3107.35 (87.42)

Total Revenue Gap (0.17) 4.38 (62.89) (67.25)

7.2.16 Revenue gap for FY03

The net gap at the year end according to BESCOM estimate is Rs.62.87

Crores. As per the Split ERC, there should have been a surplus of Rs.4.38

crores. BESCOM has requested the Commission to institute a mechanism to

recover the deficit as extra ordinary charges in FY04 because of monsoon

failure. During the validation sessions, the Commission has asked the

ESCOMs to provide specific proposals for meeting the current year deficit.

ESCOMS have stated that the Commission in its wisdom is better equipped


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Chapter-7 : ERC for BESCOM 7

to institute a mechanism. The treatment of revenue gap for FY03 by the

Commission is discussed in Chapter-11.

7.3 ERC for FYO4

7.3.1 Sales forecast

1. BESCOM has generally adopted Compounded Annual Growth Rate (CAGR)

methodology to project metered sales. Depending upon the data

availability, 3 to 5 years average growth rate was considered for projecting

FY04 sales. The total sales is expected to grow up from 9173 MU in FY03 to

9750 MU in FY04. The overall sales growth projected is 6.29 % over FY 03. Out

of this, LT categories are expected to grow at 3.89 % compared to the 14.57%

growth in the HT categories. Major growth is expected in HT commercial

(17.82 %), LT commercial (15.69%) and HT industrial (16%). Domestic sector is

expected to grow at a rate of 6.65% which is comparable to the overall

growth. For Water supply, the projection is based on average consumption

per installation.

2. The Commission notes that the projections of BESCOM are based on applying

CAGR for FY03, which is a year with restricted supply due to low hydel

generation. This being the case, the FY04 projections would also be

pessimistic. Besides, there are nearly 2.86 lakh installations regularised prior to

the implementation of ATL in FY03, which was not considered for the sales

forecast. Compared to the initial filing, the number of installation has

increased by about 2.07 lakhs, where as, the consumption has decreased by

about 40 MU in the revised filing. The Commission has raised this issue during

the validation sessions. BESCOM has responded that the input would be

restricted by KPTCL in order to limit the total power purchase and hence

considering a growth rate on the restricted base does not underestimate the

sales. Further the Commission has specifically pointed out that 16% growth

considered for HT industries is on the higher side compared to the previous


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five years. However BESCOM has informed that such a growth is expected

due to general improvement in the industrial growth.

3. As in FY03, sales estimation for the unmetered class is based on the specific

consumption. Sales to IP sets (excluding LT-4(c)) has been estimated as 3310

MU by BESCOM in the filing. As noted in Chapter-6, the Commission has

revised the sales to IP sets as 3402 MU (excluding LT 4 (c)) considering the mid

year number of consumers. BJ/KJ sales estimated on 18 kWh/month per

installation is 120MU. The total estimated unmetered sales for FY04 projected

by BESCOM is 3639 MU, which includes streetlight consumption of 209 MU.

The sale to unmetered classes estimated by the Commission is 3731 MU.

4. In the absence of any better information, the Commission accepts the sales

estimates of BESCOM for FY04 except for IP sets, for which the Commission

has revised the sales as 3402 MU. Category wise sales is indicated in table

below:

Table-67

Sales Estimates for FY04

Category Type of installation FY-03

Revised filing (MU)

FY-04 Revised

filing (MU)

Growth over FY03

(%)

Approved Sales

(MU)

LT 1(a) Bhagyajyothi/KutirJyothi 114 120 5.26 120

LT 2(a)&(b) Domestic/AEH 2075 2213 6.65 2213

LT-3 Commercial 408 472 15.69 472

LT-4(a) & (b) IP sets unmetered (less than 10 HP) 3279 3296 0.52 3388

LT-4(c) IP sets more than 10 HP 4 4 0 4

LT-4(d) Private Horticulture nurseries, Coffee and Tea Plantations 14 14 0 14

LT-5 Industrial, Non-industrial, Heating, Motive power 821 850 3.53 850

LT-6(a)&(b) Water Supply 173 184 6.36 184

LT-6(a)&(b) Street lighting 198 209 5.56 209

LT-7 Temporary consumers 28 29 3.57 29

Sub Total LT 7114 7391 3.89 7483


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Table – 67 (contd.)

Category Type of installation FY-03

Revised filing (MU)

FY-04 Revised

filing (MU)

Growth over FY03

(%)

Approved Sales

(MU)

HT-1 Public Water Supply 329 351 6.69 351

HT-2(a) Industrial, Non-industrial, & Non Commercial 1300 1508 16.00 1508

HT-2(b) Commercial 376 443 17.82 443

HT-3(a)&(b) Irrigation & Agricultural Farms 2 2 0 2

HT-5 Residential apartments and colonies 52 55 5.77 55

Sub Total HT 2059 2359 14.57 2359

Total 9173 9750 6.29 9842

Metered 5568 6111 9.75 6111

Unmetered 3605 3639 0.94 3731

7.3.2 Distribution Losses & Energy Input

As discussed in Chapter-6 relating to Distribution Losses, the Commission

determines the allowable loss for BESCOM for FY04 as 21.35 %. Applying this

loss level to the approved energy input of 12823 MU to BESCOM, the total

sales should be 10085 MU. The Commission therefore builds an additional

sales of 335 MU over BESCOM’s own estimate of 9750 MU. Of this 92 MU is

the increase due to the revision in IP set consumption while 243 MU is the

increase in metered consumption due to efficiency improvements which the

ESCOMs have to achieve.

7.3.3 Capital Investment Programme

1. BESCOM has allocated Rs.381.63 crores for the capital investment

programme in FY04. The revised scheme-wise allocations as provided by

BESCOM in letter No. BC-18/615/15658-69 dated 20.01.2003 is as follows:


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Table-68

Scheme-wise Allocation of Capital Investment of BESCOM for FY04

Sl.

No. Scheme Rs.crores

1. SYSTEM AUGMENTATION & STRENGTHENING

A. Extension & Improvement ( General) 60.95

B. Extension & Improvement ( ATL works) 24.36

C. Replacement of faulty distribution transformer Centres

(DTC)

3.90

Sub-Total 89.21

2. Service Connection 8.95

3 Accelerated Power Development & Reform Programme

(APDRP)

186.10

4. RURAL ELECTRIFICATION (GENERAL)

A. Electrification of Hamlets 2.31

B. Energisation of IP sets 7.09

C. Kutir Jyothi 1.56

Sub-Total 10.95

5. TRIBAL SUB-PLAN

A. Electrification of Hamlets



Sub-Total 1.15

6. SPECIAL COMPONENT PLAN

A. Electrification of Hamlets 9.08



Sub-Total 12.22

7. CIVIL ENGINEERING WORKS( Incl T& P) 2.71

8. METERING 7.00

9. CONSTRUCTION OF NEW SUB-STATIONS & LINES -

10. COMPUTERISATION 1.80

11. UNIVERSAL METERING PROGRAMME 61.53

GRAND TOTAL 381.61

2. The following are the observations of the Commission on the Capital

investment programme of BESCOM:

i. As per FRP total allocation available for BESCOM towards capital

expenditure during FY04 is Rs.133.91 crores. BESCOM had not made

any allocation for the APDRP works, although APDRP Schemes have

been sanctioned in Bangalore, Davanagere (Town) and Tumkur districts

totalling to about Rs. 372.21 crores as intimated by BESCOM in their


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letter no BC-18/601/9623 dated 28.12.2002. After the same was pointed

out by the Commission, they have now made an allocation of Rs.

186.10 crores for APDRP works in FY04. Similarly, for universal metering

programme an allocation of Rs. 61.53 crores has been made in the

revised allocation. BESCOM has however stated that there is no capital

expenditure limit for the APDRP works and universal metering

programme.

ii. Similarly BESCOM had not made any provision for computerization

programme in their earlier allocation. In this regard BESCOM had

clarified that major computerization programmes (both software and

hardware) are programmed to be outsourced. However in the

provision of Rs.1.80 crores under Tools & Plants, computers required will

be purchased and if need be re-appropriation will be made.

Subsequently in letter dated 20.01.2003, BESCOM has shown an

allocation of Rs.1.80 crores for the computerization programme.

iii. BESCOM has not made any provision for the 33 kV Sub-stations and line

works. However they have clarified that five numbers of 33 KV stations

in Kolar District are being upgraded to 66 KV by KPTCL and BESCOM

has no plans to carry out 33 kV works during FY04 and hence no

allocation has been made for 33 kV Works.

3. The Commission approves the capital investment of Rs. 381.61 crores in the

ERC of FY04 which includes APDRP works amounting to Rs.186.10 crores and

universal metering programme amounting to Rs.61.53 crores, subject

however to detailed scheme wise review. It is noted that BESCOM has not

taken any approval from the Commission for APDRP works. BESCOM has to

furnish the scheme reports of all works, including APDRP works, costing more

than Rs.1 crore for approval of the Commission.

7.3.4 Power Purchase Cost

The energy input at the interface points as per filing of BESCOM is 12768 MU.

BESCOM has projected the power purchase cost as Rs.3002.76 crores

considering the estimated BST of 215.8 paise/kWh and transmission tariff of

19.4 paise/kWh proposed by KPTCL. The Commission has revised energy

input to BESCOM as 12823 MU. The Commission approves the power

purchase cost of BESCOM as Rs. 2721.55 crores in FY04 considering the rates


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of BST of 193.57 paise/unit and Transmission tariff of 18.67 paise/unit

approved by the Commission.

7.3.5 Repairs and Maintenance Expenses: BESCOM has proposed a 10% increase

in repair and maintenance expenses over FY03 level to cover the inflation

and increase in asset base. During the validation sessions, the Commission

had requested BESCOM to provide the actual expenses for FY03, which has

been provided by them. The repairs and maintenance expenses proposed

by BESCOM in FY04 is Rs.41.49 crores. The Commission allows this expenditure

as proposed by BESCOM.

7.3.6 Employee Cost:

1. BESCOM has assumed reduction in the Basic Pay to the tune of 1.748% and

DA at the level of 54% in the first quarter, 56% in the second and third

quarters and 58% in the last quarter of FY04. The other allowances are

maintained at the level of the previous year. Other employee costs are

expected to increase by 4 %.

2. BESCOM has made provision for terminal benefits at 15.18 % of Basic pay

and DA as in FY 03, based on the actuarial valuation report as on 31.5.2002.

Reference is drawn to GO dated 19.12.2002 in which Government has

approved the option of ‘Pay-As-You-Go’ in respect of terminal benefits to

employees and it has been directed in the GO to make provision for

terminal benefits to employees effective from 1.6.2002. The provision for

FY04 may be required to be revised after updation of actuarial report.

3. BESCOM has stated in the filing that provision for Bonus has been made to

an extent of Rs.2.97 crores and has requested the Commission to allow this

provision on the same grounds stated by KPTCL in its ERC. Regarding

free/subsidised supply to employees, BESCOM has not provided any details

and therefore, the Commission has estimated this expenditure as Rs.5.19

crores for BESCOM based on FY03 level of expenditure indicated in Tariff


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Order 2002 for KPTCL as a whole. The matter of Bonus to employees and free

lighting to employees has been discussed in Chapter 5 of this Order.

Accordingly, the Commission does not allow this provision for bonus (Rs.2.97

crores) and the cost of free/subsidised power supply to employees (Rs.5.19

crores) in the ERC.

4. BESCOM has made a similar request as that made by KPTCL regarding the

provision for pay revision to employees due in FY04. This matter has been

discussed at length and the Commission’s views have been indicated in

Chapter-5 while discussing the ERC of KPTCL, which applies to BESCOM as

well. As indicated in Tariff Order 2000, the Order of the Commission will not

in any way hinder the licensee from fulfilling its contractual obligation to its

employees.

5. Considering all the above, the Commission approves employee cost

amounting to Rs.234.53 crores for BESCOM in FY04, the details of which is

shown below:

Table-69

Employee cost of BESCOM in FY04

(Rs crores)

Employee cost proposed by BESCOM 242.69

Less: Provision for Bonus 2.97

Less: Free supply of Electricity to employees 5.19

Employee cost as approved by KERC 234.53

7.3.7 Administration and General (A&G) Expenses

1. BESCOM has proposed an increase of 20% in A&G expenses in FY04 over the

revised estimate of FY03. During the validation sessions, the Commission

pointed out the direction contained in the Tariff Order 2002 to limit the A&G

expenses to FY01 level and asked to explain the action taken to reduce the

expenditure. However, no specific reply has been provided on this issue by


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BESCOM but has maintained that post unbundling and setting up of

separate head office and increase in related expenses as the reasons for

20% increase sought. In the replies, BESCOM has specifically stated the

following reasons for the increase in A&G expenses:.

1. Planning for the creation of centralized data base and data ware

housing and bids were called for the same.

2. Issue of spot bills using handheld device will be introduced after

successful trial operation.

3. Outsourcing of distribution transformer wise energy audit in major towns

4. Assigned for studies on solar rebate to PRDC.

5. Outsourcing of revenue management in subdivisions.

6. Outsourcing of IP set consumption estimation.

7. Communication campaign on -

a. Power sector reforms

b. Formation of BESCOM

c. Filing and approval of tariff proposal

d. Need for metering of IP sets/ BJ installations

e. Various innovative methods adopted to improve customer care

2. Further, BESCOM has stated that in view of the Commission’s directive to

improve customer service and quality of supply, the increase in A&G

expenses proposed is reasonable and essential to bring out qualitative

changes in services and application of new technology. It has been further

stated by BESCOM that considering the new initiatives taken up, limiting the

A&G expenses to the FY 01 level is practically not possible and requested

the Commission to revise the norms.

3. The Commission notes that BESCOM has proposed an increase of 20% in

respect of each of the components under A&G expenses and that

increases sought in many components are not completely related to the

level of activities planned. Besides, BESCOM has not provided the estimated


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expenditure on the activities listed above. The Commission also feels that,

outsourcing of many of the traditional activities are now being taken up in

the name of shortage of staff.

4. One of the major objectives of the reforms in the power sector is to improve

efficiency and to bring in economy. Through unbundling, different

companies have been formed which, as pointed by BESCOM, may lead to

some duplication of expenses. However, such increase in expenses needs to

be offset by reduction in other expenses by improving the efficiency.

5. The Commission has noted various initiatives taken up by BESCOM and

appreciates the same. The Commission is aware of the fact that additional

expenses are required to meet the planned activities, but at the same time,

there is need to keep a check on the A&G expenses. Considering all the

above, the Commission approves to provide a 10 % increase in A&G

expenses in FY04 over the actual expenditure incurred in FY02. Thus the

approved A&G expenses for FY04 is Rs.22.10 crores.

7.3.8 Depreciation

Depreciation has been estimated at 7.35% by applying the rates of

depreciation as in GOI notification. The Commission accepts this provision.

7.3.9 Interest and Finance Charges

BESCOM has proposed Rs.56.65 crores under interest and finance charges in

FY04. During the validation sessions, the Commission has requested the

details of institution wise loans and interest for each of the ESCOMs. In reply,

BESCOM has stated that the allocation of loans and interest to ESCOMs

under the transfer scheme is not yet finalised and pending such finalisation,

the interest cost has been worked out on an average basis. In the absence

of any further information on this account, the Commission accepts the

estimate furnished by BESCOM.


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7.3.10 Other Debits

BESCOM has stated that owing to the difficulty in estimating the other debits,

no provision has made for this item and has requested to pass through the

actuals in the future tariffs. The Commission is of the view that, a realistic

attempt towards estimating the provision for this item needs to be done.

7.3.11 Expenses Capitalized

The capitalization of expenses has been retained at the same level of

Rs.1.65 crores as in FY03. Considering the provisional nature of the estimates,

the Commission accepts this estimate.

7.3.12 Net Prior Period Charges and Credits

Like the provision under Other Debits, no provision has been made on this

account.

7.3.13 Reasonable Return

Return amounting to Rs.18.50 crores has been provided by BESCOM at 3% of

net fixed assets at the beginning of the year. As discussed under ERC for

FY03, the Commission accepts this provision

7.3.14 Annual Revenue Requirement (ARR)

Summary of the ARR proposed by BESCOM and as approved by the

Commission for FY04 is given below:


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Table-70

ARR proposed by BESCOM and as approved by the Commission for FY04

(Rs crores)

Particulars Proposed by BESCOM Approved by the

Commission

EXPENDITURE

Purchase of power 3002.76 2721.55

Repairs and Maintenance 41.49 41.49

Employee Costs 242.69 234.53

A&G Expenses 26.52 22.10

Depreciation and related debits 93.79 93.79

Interest & Finance charges 56.65 56.65

LESS:

Expenses capitalised -1.65 -1.65

Other Debits 0.00 0.00

Net Prior Period Credits 0.00 0.00

Return on NFA 18.50 18.50

Total Expenses 3480.75 3186.96

7.3.15 Revenue from Existing Tariffs

1. The Commission has pointed out the discrepancies in the revenue estimates

made by ESCOMs in Chapter-2. In the absence of any further credible

information, the Commission accepts the revised revenue estimates of

BESCOM at existing tariff of Rs.2911.58 crores.

2. The Commission notes that revenue estimation is an important exercise in the

whole ERC estimation. In the earlier Tariff Orders the Commission has

mentioned about the necessity for developing a systematic approach

towards revenue estimation by adopting a robust sampling procedure. The

Commission observes that in the sampling methodology adopted by

BESCOM in the present filing, the entire BESCOM service area has not been

represented. BESCOM could have used the actual computer billing data

for slab-wise consumption instead of adopting a sample for BMAZ area since

the computerisation is stated to be almost complete in this area. The

Commission once again reiterates that a systematic approach needs to be

adopted by BESCOM for realistically forecasting the revenue in future.


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7.3.16 Miscellaneous income

In the initial filing BESCOM had projected the miscellaneous income as

Rs.52.07 crores which was the same as in FY03 revised estimate. This amount

has been subsequently revised to Rs.59.88 crores in the revised ERC filing.

However no justification is given by BESCOM either for keeping this income

at the same level as in FY03 or for revising it. In the absence of further

information, the Commission approves the estimate of BESCOM.

7.3.17 Other income

BESCOM estimates Rs.13.21 crores as other income in FY04 which is at the

same level as in previous year. The Commission approves the estimate of

BESCOM.

7.3.18 Revenue Gap

1. The revenue gap for BESCOM with existing tariff is given below;

Table-71

Revenue Gap at existing tariff in BESCOM for FY04

(Rs crores)

Particulars

As per ERC

filing of

BESCOM

As approved

by KERC

Total expenditure including return 3480.75 3186.96

LESS : Other income 13.21 13.21

Net revenue requirement 3467.54 3173.75

Revenue from sale of power (net of rural rebate) 2944.46 2944.46

Surplus/(Deficit) before subsidy (523.08) (229.29)

Addition revenue to be realised due to

reduction in distribution losses 82.62

NET REVENUE (GAP)/SURPLUS BEFORE SUBSIDY (523.08) (146.67)

2. The revenue gap of BESCOM in FY04 at the existing tariff, before

Government subsidy is estimated to be Rs. 146.67 crores. Since the

Government subsidy is required to be allocated to the ESCOMs as a gap

filling exercise, the total revenue gap of all the ESCOMs is considered

together and discussed in Chapter-11.

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