1 17 august 2001 k balarama reddi & usha ramachandra tariff setting under independent regulation...
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17 August 2001
K Balarama Reddi & Usha Ramachandra
TARIFF SETTING UNDER TARIFF SETTING UNDER INDEPENDENT REGULATIONINDEPENDENT REGULATION
Rs.
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TARIFFS IN ELECTRICITYTARIFFS IN ELECTRICITY
Tariffs for:
• Generated power (from each generating company)
• Transmission Tariffs
• Bulk Supply Tariffs (Pooled power & transmission charges)
• Retail Supply Tariffs (for end consumers)
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TARIFFS BEFORE INDEPENDENT REGULATION TARIFFS BEFORE INDEPENDENT REGULATION
State Electricity Boards:
Bundled tariff for generation, transmission & distribution according to:
Section 59 & Section 63 of ES Act (1948)
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TARIFFS BEFORE INDEPENDENT REGULATION TARIFFS BEFORE INDEPENDENT REGULATION Cont…d Cont…d
Distribution Licensees:
Section 57, 57A & Sixth Schedule of ES Act 1948The provision under Sixth Schedule (ES Act) reads:•………The licensee shall so adjust the charges that his clear profit in any year shall not as for as possible, exceed the amount of reasonable return.
•Sixth Schedule clearly defines - •Capital base•Reasonable return on capital base•Clear profit
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TARIFFS BEFORE INDEPENDENT REGULATION TARIFFS BEFORE INDEPENDENT REGULATION Cont…d Cont…d
Generating Companies:
K.P. Rao Committee
CEA Amendments of 1992 for IPPs & the PPAs consequently drawn up
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Tariffs for:
Generation tariff for centrally-owned generating companies
Generation tariff for Companies supplying power to more than one state
Transmission tariff for interstate transmission of power
CENTRAL ELECTRICITY REGULATORY COMMISSION
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Regulation of:
Purchase of power
Transmission tariffs within the state
Retail distribution tariffs within the state
STATE ELECTRICITY REGULATORY COMMISSIONSSTATE ELECTRICITY REGULATORY COMMISSIONS
Generation Tariffs for State Gencos with State Govt.New PPAs to the cleared by the SERCs
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PRINCIPLES OF TARIFF SETTING PRINCIPLES OF TARIFF SETTING
The Commission shall be guided by the following:
The principles and their application in Section 46, 57 & 57A of Electricity (Supply) Act and the Sixth Schedule
The tariff progressively reflects the cost of supply The factors that would encourage efficiency, economical
use of the resources The tariff shall not show undue preference to any
consumer, but may differentiate according to various factors
Where the commission departs from the laid down principles, the reasons shall be provided in writing
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GENERATION TARIFFSGENERATION TARIFFS
• Single part tariff
• Two part tariff - K P Rao
• Availability Based Tariff (ABT)
Capacity charge Energy Charge Unscheduled Interchanges
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Capacity charge will be related to availability of the generating station.
Incentive payment will be made when the actual generation is more than the normative generation corresponding to the target availability
Energy charges shall be worked out on the basis of p/kwh rate on ex-bus energy sheduled to be sent out from the generating station as per the following formula
As a disincentive the fixed charges and ROE will get reduced proportionately if the availability is less than availability factor fixed.
Charges for unscheduled interchanges as stated.
ABT: Salient FeaturesABT: Salient Features
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MW 100
0
Partialoutages
Econ
omic
shut
down
(m
erit
orde
r de
spat
ch)
Outa
ges
Time (%) 80 90
Target availability in such a case has to be between 80 and 90%.
Energy Produced
Available, butunused
Availability Factor (cont..d)
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ABT & Unscheduled Interchange
Ave. Frequency ofTime Block
UI Rate (p/ kwh)
50.5 Hz & above 0.0
Below 50.0 Hz &upto 50.48 Hz
5.6
Below 49.04 Hz &upto 49.02 Hz
414.4
Below 49.02 Hz 420
Between 50.5 Hz &49.02 Hz
Linear in 0.02 Hzstep
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Merits of ABT
facilitates grid discipline
facilitates trading in capacity and energy
facilitates merit order despatch
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PGCIL Availability
• Are incentives based on availability relevant for transmission systems?
• Target availability for recovery of full fixed charges - 95% or 98%.
•
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Reactive Energy Charge
Reactive Energy supplied by generators at the cost of real power could be charged to the SEBs as a separate charge- CERC Consultation Paper on Bulk Tariffs, Sept. 1999
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The transmission tariff is based on investment costs (fixed costs) covering:
Interest on debt Depreciation Operation & Maintenance costs Return on equity Interest on working capital Taxes, if any
Transmission Tariff
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Transmission access and wheeling is a complex arena encompassing physics, economics and regulation.
What is Wheeling?
Wheeling in its broadest sense, is the delivery of electric power from one party to another, utilising the transmission facilities of the third party.
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Transmission Rates
Paise/kwh: A flat rate per kWh generally measured at the point(s) of delivery. This category includes rates stated in paise per Kwh.
Paise/kW: A flat rate based on either contract or billing demand. Billing demand is generally defined as the highest 30 or 60 minute integrated demand measured during the billing month. In some instances a demand ratchet is employed.
Demand & Energy: A two-part rate including flat rate per kWh delivered plus a demand charge expressed in kW based on metered demand.
Mileage Component Rates: A rate wherein the charge is based in part upon distance, generally stated in Rs. Per circuit mile. Billing demand is generally calculated as the highest 30 or 60 minute integrated demand during the billing month.
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The bulk supply tariff contains two components:
i) The cost of purchase of power
ii) Transmission costs
Bulk Supply Tariffs
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RETAIL SUPPLY TARIFFS APPLICATION & ORDER
A Typical Tariff Application comprises:
1. Demand Forecasts
2. Determination of Capital Base
3. Details of Expenditure
4. Revenue Requirement
5. Tariff Setting (average cost of supply per kwh & tariff structure)
6. Efficiency Improvements
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Retail Supply Tariff Calculation
Calculation of Revenue Requirements:
Req.Rev = Expenses + (Return on Capital Base)
Tariff Structure to meet Revenue Requirements
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Revenue Requirements
Sum of:• Rate of return on fixed assets • Expenses
Less:
• Miscellaneous revenue and sales to other states• Subsidy from State Government
Revenue Requirements
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Tariff Determination - Existing
Existing Tariff Structure
• Correlation of Demand and Energy Costs to Fixed and Variable Costs
• Monthly minimum charges Fuel cost adjustment Existing customer charges etc.
• Meter maintenance• Meter reading, billing and serving of bills• Collection of revenue• Maintenance of Customer Accounts
Meter rents Power factor charges Delayed payment charges
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Rationalization of existing tariff structure
Tariffs to different categories of consumers - an attempt to move towards cost of services
Social aspects including tariff to Agricultural Sector
Fuel cost adjustment Electricity duty and taxes
Tariff Determination - Proposed
ISSUES
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EFFICIENCY IMPROVEMENTS
Status of Metering Billing and revenue realisation DSM, If any Repair and Maintenance costs
Material Management - Inventory Control T&D Losses reduction programme
• Transformer repairs etc.
• Technical• Non technical (Commercial)
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Revenue Gap
The gap between the revenue requirement and revenue from current tariffs.
(Rs. Crores)
Revenue requirementRevenue from current tariff
-------------THE GAP
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The gap has to be met by:
Revenue Gap
Subsidies
Efficiency Gains(T & D loss &
exp.)
Tariff Increases
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Re-evaluation of revenue gap
• Likely revenue from additional sales.
• Subsidy from State Government.
• Additional resources through tariff
increase.
The issue is whether tariff can be increased to meet the entire revenue gap? If not what is to be done?
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SERC ORDERSSERC ORDERS
Orissa ERC, 1997, 1998, 1999 & 2000
Maharashtra ERC May 2000
Andhra Pradesh ERC May 2000, 2001
Uttar Pradesh ERC July 2000
Gujarat ERC October 2000
Haryana ERC, December 2000
Karnataka ERC, December 2000
Since then Rajasthan, Delhi
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Orissa CaseOrissa Case
1. Orissa Tariff Order for 1997-98 (Gridco)
2. Orissa Tariff Order for 1998-99 (Gridco separate for transmission & distribution)
3. Orissa Tariff Order for 1999-2000 Gridco & four Distribution Companies
4. 2000-01 Tariff Orders
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Power Station Gridco’sProjection
MU
OERC’sProposal
MU
Gridco’sProjectionRate P/U
OERC’sProposalRate P/U
1 Hydro (State) 3800.00 3800.00 49.00 49.002 Hydro (Machkund) 300.00 300.00 8.00 8.003 Hydro (Chukha) 200.00 200.00 76.00 76.004 Kaniha (Infirm) 100.00 100.00 48.00 48.005 Thermal (CPP) 1000.00 905.00 90.00 90.006 Thermal (TTPS) 1600.00 1600.00 140.00 130.687 IB TPS (OPGC) 2330.00 2330.00 165.00 157.828 Farakka 900.00 143.84 135.00 126.009 Kaniha (Firm) 470.00 0.00 255.00 176.0510 Kahalgoan 300.00 0.00 255.00 176.05
Total 11000.00 9370.62Source: OERC Case No.4 of 1997, p.44 & 46
OERC: Power Purchase & CostOERC: Power Purchase & Cost
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Category Gridco’s Proposal ofconsumption in MU
OERC’s ApprovalIn Mu
1 Kutir Jyothi 30.000 30.0002 Domestic 1995.000 2134.6653 Commercial 354.000 432.3104 Irrigation 197.000 236.8575 LT (Other) 440.300 425.8686 HT Category 1410.700 1411.2007 EHT Category 1953.000 1952.500
Total 6380.000 6623.400T & D Losses 41% 35%Total Purchase 10814.97 10093.47
Source:OERC Case No. of 1998, Annexure E
OERC: Category wise Sales: 1998-99OERC: Category wise Sales: 1998-99
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Number of Employees per thousand Consumers
1 All India Average 12 (Compiled upto end of 1995)2 Gridco 24.82 or 25 (Compiled upto end of 1998)Number of employees per MKwh of electricity sold:
1 All India Average 3.9 or 4 (Compiled upto end of 1995)2 Gridco 4.9 or 5 (Compiled upto end of 1998)Source: OERC Case No.19 of 1998, p.20.
OERC: BenchmarksOERC: Benchmarks
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Power Sector Restructuring - 1999Power Sector Restructuring - 1999
Orissa distribution was divided into four joint venture companies:
WESCOWESCO
SOUTHCO SOUTHCO
NESCONESCO
CESCOCESCO
* WESCO, SOUTHCO & NESCO filed joint application for RST revision on 30-07-99
BSESBSES
AESAES
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Retail Tariff for WESCORetail Tariff for WESCOTariff Order 30-12-1999Tariff Order 30-12-1999
Retail Supply Tariff (RST) filed: 30-07-1999
Further information sought by OERC: 13-08-1999
Fresh application with all details filed: 27-09-1999
Objections received 17
Objections Heard 12
Enquiry: Dec. 1999
Tariff Order: 30-12-1999
OERC could pronounce tariff orders of 5 companies within the mandatory 3 months.
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Differential Bulk Tariff 1999-2000Differential Bulk Tariff 1999-2000
WESCO: Demand Charge: Rs.200/KVA/monthEnergy Charge: 99.20 paise/kwh
SOUTHCO, CESCO, NESCO:Demand Charge: Rs.200/KVA/monthEnergy Charge: 80.70 paise/kwh
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Pre-reform Post-reform07.9.93 28.58% 21.5.96 17% (GoO)16.7.94 15.73% 01.4.97 10.33%05.01.95 17.47% 01.12.98 9.3%
01.2.2000 4 - 5%
Tariff Reforms in OrissaTariff Reforms in Orissa
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T & D lossesT & D losses
Compare the Three Tariff Revisions:
1. 1997-98: Gridco’s losses of 42% to be reduced to 35%
2. 1998-99: Gridco claimed that actual losses were 46% and has been reduced to 41%.
OERC rules that 35% is a benchmark & incentive of 1% increase in return for every 1% decrease in T & D losses below 35%.
3. 1999-00: WESCO’s losses are really 46%, only 3% decrease is possible in the coming year but agreed for 40% decrease for distribution and 4% for transmission.
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Desired level of T&D loss reduction has not been achieved
Sale projections fell much below the level of expectation
Asset revaluation soared the revenue requirement of GRIDCO
Handling of accumulated losses of approx. Rs.900 Crores for the period 01.4.96 to 31.3.99
Who should share the burden? Consumers/Licensee/Government?
ISSUES AT STAKEISSUES AT STAKE
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Summary of Expenses Approved by the MERC for 2000-01
MSEB MERC RemarksProposal Approval
Generation of Power 3,540 3,387 Based on the Commission’s targets for Generation.
Purchase of Power 3,798 3,542 Based on the Commission’s approval of power purchase.
Repairs & Maintenance 675 675
Employees Costs 1,519 1,419 Additional expenses arising out of implementation of 5th Pay Commission may be recovered through efficiency improvement.
Admn & Gen. Expenses 151 151Depreciation 1,294 1,293 Token deduction of Rs.1 Crore for non-
submission of information to the Commission to ascertain the prudency of the capital
investment during last five years.
Figures in Rs.Crores)
Contd.
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MSEB MERC RemarksProposal Approval
Interest Charges 1,239 1,127 Interest on investment in DPC has been disallowed. Also token reduction of Rs.1 crore for non-submission of information to allow the Commission to ascertain the predency of the capital expenditure investment. Token reduction for working capital on account of poor receivables management.
Provision for doubtfuldebts 200 200
Other debts 317 277 Cost of recovery from agricultural consumers has been disallowed.
Total Expenses allowed 12,733 12,071
Note: All expenses have been shown net of capitalisation
Contd.
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Summary of Revenue Statement for Year 2000-01
Existing Tariff with Description MSEB MERCMSEB Forecast Proposal & Forecast &
Forecast Approval
10,703 Revenue from Sale of power 12,721 11,215 84 Miscellaneous Revenue 84 91 350 Other Income 350 454
Additional Revenue from T&D loss reduction 600
11,137 Total (Revenue) (Rs. Crores) 13,155 12,36012,733 Total Expenses 12,733 12,071
-1,596 Surplus 422 289 2.60 Average Realisation (Rs./Unit) 3.08 2.85 2.98 Average Cost of Supply (Rs./Unit) 2.98 2.79
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Tariff Hike
Description MSEB MERC(Proposal) (Approval)
Tariff increase in Rs. Crores 2,018 691
Tariff Hike in % 18.9 6.5
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A P Transco: Cost of ServiceA P Transco: Cost of Service20002000
Category Cost to Serve(ps/kwh)
Expected Realisationfrom proposed tariffs(p/kwh)
Percentage of costof service realised
Domestic (LT-I) 455 224 49Commercial (LT-II) 375 455 121Industrial (LT-III) 336 392 117Irrigation & Agric. (LT-V) 329 30 9HT Industry (HT I&III) 203 466 230Railway Traction (HT-V) 202 466 231Average 327 227 69
Current realisation is: Domestic - 168 p/kwhAgriculture - 18 p/kwh
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Sl.No Item (Rs. Crores)
(a) Energy sales (MU) 27538(b) Total expenses 8948.93(c) Reasonable Return 89.71(d) Miscellaneous Revenue
Variable cost adjustments457.47216.00
(e) Revenue Requirement (b+c-d) 8365.17(f) Revenue based on current tariffs 5447.87(g) Additional revenue requirements 2917.30(h) Subsidy in Government of A.P. 1345.00(i) Revenue by way of efficiency improvement by
APTRANSCO500.00
(j) Gap to be filled by increase in tariffs 1072.00
APTRANSCO: Revenue Required
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A P Transco: Filing of Proposed TariffA P Transco: Filing of Proposed Tariff20002000
Suggested that the Revenue Gap would be bridged by creating a regulatory asset
This year’s proposal - tariff increase is nominal, govt subsidy at the same level as last year has been envisaged & “revenue gap” of Rs.1450 crs to be bridged through efficiency improvements & internal resources
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Features of KERC Tariff Order: 2000Features of KERC Tariff Order: 2000
KPTCL should report to the Commission by March 31st confirming that all unauthorised IP sets have been disconnected.
KPTCL should submit an Action Plan to KERC on how to reduce T & D losses by at least 2% in 2001-02
ERC was approved on the basis of a reduction of 5.5% in commercial losses in 2000-01 & a further 5% in 2001-02
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Features of KERC Tariff Order: 2000Features of KERC Tariff Order: 2000(Con..t)(Con..t)
Penalty of Rs.5 crs for not providing requested information on purchased power
Merit Order Purchase plan to be prepared & approved by KERC 15 days before the start of the month
All works more than Rs. 1 lakh to be allotted through a bidding process and NO price preference at all.
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Features of KERC Tariff Order: 2000Features of KERC Tariff Order: 2000(Con..t)(Con..t)
Socio-economic profile of Bhagya jyothi/ KJ consumers to assess ability to pay
Should implement metering of the streetlight installations in one year
Dues from PSUs & Govt. local bodies to be added to the amount of subsidy due from Govt.
Toll free phone numbers to register complaints Rs. 35 crs disallowed on account of free electricity,
bonus & DA overestimated Benchmarking of system parameters
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Features of KERC Tariff Order: 2000Features of KERC Tariff Order: 2000(Con..t)(Con..t)
Profile of agricultural consumers and charge equivalent to ave. cost of power purchased charged to those who
Those who have more than one IP set Income tax payer Owner of a tractor Owner of four wheeled vehicle Telephone connection including mobile set
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Features of UPERC Tariff Order: 2000Features of UPERC Tariff Order: 2000
Efficiency improvement targets over the next five years:
T & D loss reduction programme from 36.5% in 2000-2001 to 20.5% in 2005-06 for UPPCL and 30.2% in 1999-2000 to 15% in 2004-05 for KESCO
Installation of meters at all 11 KV feeders by 30.9.2000
100% metering of all consumers by 31.12.2001 On-line billing in 20 selected towns by March 31
2001
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Features of UPERC Tariff Order: 2000Features of UPERC Tariff Order: 2000(Cont…d)(Cont…d)
UPPCL application was inclusive of subsidy available from Govt. of UP.
Used the ave. cost of supply as a benchmark to fix tariffs for each consumer category
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Features of HERC Tariff Order: 2000Features of HERC Tariff Order: 2000
Unless trust if formed for retirement benefits, HERC would not allow any funding from the tariff revenue to be used for this purpose
No diversion of PF contribution to the business Deferred payment of subsidy by Government will not be
ordinarily allowed in the future As long of Govt. ownership continues the amount of
depreciation allowed would be adjusted against this regulatory asset till fully amortised
Any efficiency gains by reduction of T & D losses shall be shared between the Licensee & consumers in the ratio of 6:4
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