Background

HVPNL filing

Comments received on the application

Commission observation and decision

Annexure

Shri V. S. Ailawadi Chairman
Shri R. Chandra Member
Shri K. S. Chaube Member

In the matter of application of filing of combined Fuel Surcharge Adjustment (FSA) calculations for the four quarters of the financial year 1999-2000 by Haryana Vidyut Prasaran Nigam Limited (HVPNL) having its registered office at Shakti Bhawan, Sector 6, Panchkula. HVPNL is the holder of the Transmission and Bulk Supply licence (Licence No. 1 of 1999) as well as Distribution and Retail Supply licence (Licence No. 2 of 1999) granted by the Commission.

This order relates to the filing of combined fuel surcharge adjustment application made by Haryana Vidyut Prasaran Nigam Limited (HVPNL) for the four quarters of the financial year 1999-2000 to be recovered during the financial year 2000-2001.

1.Background

On the 14^th of June, 2000, Haryana Vidyut Prasaran Nigam Limited (HVPNL) has filed an application soliciting approval of the Commission for levying fuel surcharge towards recovering the increased cost of power purchased from various sources. HVPNL is the holder of the Transmission and Bulk Supply licence (Licence No. 1 of 1999) as well as Distribution and Retail Supply licence (Licence No. 2 of 1999) granted by the Commission. The filing was made in accordance with the provisions of the Haryana Electricity Regulatory Commission (Tariff) Regulations, 1999 (referred hereinafter as "Tariff Regulations"). HVPNL has filed the application jointly in respect of the transmission and bulk supply business and the distribution and retail supply business in the absence of an approved bulk supply tariff and individual licences for its distribution subsidiaries.

Regulation 4(1) of the Tariff Regulations requires that the tariff rates shall be adjusted quarterly in accordance with any fuel surcharge adjustment (FSA) formula incorporated in the tariff with the approval of the Commission. Regulation 4(2) specifies the formula to be used for calculating the FSA. Regulation 4(3) prescribes that the FSA shall be allocated to each class of customers or consumers using the energy cost allocation factors for each class contained in the currently approved tariff. Regulation 4(4) of the Tariff Regulations requires the licensee to file all calculations and necessary documentation for verification of the calculations.

The Commission issued a public notice in the Indian Express, Economic Times, The Tribune and Punjab Kesri on June 23, 2000 inviting the public to send comments to the Commission by June 30, 2000. Comments were received from the following persons/ groups:

1. Mr. V. K. Chibber, House No. 102, Sector 12A, Panchkula;
2. Mr. P. C. Diwan, House No. 918, Sector 2, Panchkula;
3. G.T. Road Industries Association, 35^th KM, G. T. Road, Rasoi;
4. Gurgaon Chambers of Commerce and Industry, Gurgaon;
5. Prasada Mal Mukandi Lal, Ambala City;
6. Mr. Harish Khurana, House No. 923, Sector 4, Panchkula;
7. Faridabad Industries Association, Faridabad.

The Commission is passing this order after careful consideration and taking into consideration the FSA application, clarifications submitted thereto and comments received on the filing from the public.

2. HVPNL filing

Under the Commission’s tariff regulations, the calculation of the total adjustment is to begin with the purchased power costs determined for the licensee’s current tariff. In this case, however, the Commission did not determine HVPNL’s current tariff. HVPNL therefore has begun with the purchased power costs approved by the Commission in its Order dated November 26, 1999 in case no. HERC/PRO –5 of 1999 in respect of ARR filing by HVPNL for its Transmission and Bulk Supply Business for the financial year 1999-2000 and the Review Order dated May 29, 2000 in case no. HERC/RA 1 of 2000.

HVPNL has estimated, following the formula prescribed by the Commission in the Tariff Regulations, that it is entitled to recover Rs. 1,274.31 million through FSA. The claimed adjustment is the difference between:

(a)the total cost of the power that HVPNL would have purchased for its actual sales and the power loss level allowed by the Commission, using HVPNL’s actual average cost of power; and

(b) the aggregate power purchase cost in the approved ARR.

For (b), HVPNL has used the purchased power costs in the Commission-approved ARR for FY 1999-2000. However, that ARR includes only annual figures. To derive monthly (and eventually quarterly) costs and volumes, HVPNL has assumed that the power procurement pattern in FY 1999-2000 was the same as the actual monthly purchases recorded in FY 1998-99. Monthly power purchases from each source in FY 1998-99 were expressed in per cent and these monthly percentage figures were applied to the approved annual purchases from a source for FY 1999-2000. The cost has been arrived at by multiplying the volume derived above with the Commission approved average rate of power per unit for each source.

Table 1 presents the summary of the calculations leading to the amount HVPNL expects it is entitled to recover through FSA. The total recovery claimed is Rs. 1,274.31 million.

For recovery of FSA, HVPNL in its filing has proposed that the adjustment be recovered over the financial year 2000-01 by increasing the rates for all consumer classes by 5.28%. HVPNL calculated the 5.28% by dividing the total adjustment by its projected revenues for FY 2002 under its existing tariffs. Applied to the tariffs of individual customer classes, the 5.28% results in an increase of 3 paise per unit and 13 paise per unit for agricultural and domestic consumers respectively and 21 paise per unit for all other categories of consumers. HVPNL has indicated that the entire amount recovered through FSA by the distribution companies would be passed on to the transmission and bulk supply business to enable it to meet its increased power purchase costs.

The Commission received by June 30, 2000 comments from seven parties, including associations.

• Mr. V. K. Chabbier complained that electricity tariffs are already high in Haryana compared to Punjab and Chandigarh. He strongly opposed the levying of FSA.

• Mr. P. C. Diwan submitted that the FSA should not be different for different categories of consumers. He pointed out that differential FSA was never levied in the past and contended that it would be unfair to link FSA with the prevailing tariff of a category of consumer. He suggested that a full debate should be organised before the FSA is approved. He also wanted to know how FSA will be applied to flat-rate consumers.

• Mr. Khurana complained that inviting comments from the public is a eye wash exercise and such futile exercise should be stopped.

• Prasada Mal Mukandi Lal submitted that certain clarifications are required from the licensee before the FSA filing can be considered. He suggested the following points on which clarifications are required:

• difference between the approved cost and the actual cost in the third and fourth quarters;
• projected loss of 29.75% which is lower than the actual losses in the past;
• actual realisation from sale of power from different types of consumers;
• the basis for disallowing power purchase costs by the Commission;
• steps taken by the licensee to reduce T&D losses;
• what additional revenue the licensee will earn if the FSA is allowed;
• actual receipt of power from various sources and the payments actually made.

Faridabad Industries Association (FIA) submitted that the FSA application is misconceived and misleading and should be rejected outright. FIA explained the HSEB method of FSA calculation and suggested that FSA is not admissible because HVPNL has no generating station and all its power purchases are conditioned by Power Purchase Agreements (PPAs) where no escalation of cost is involved.

FIA has also made certain specific comments on the FSA application, which are noted below:

• reasons for variations in actual power purchase costs from the projected costs are vague and need to be rejected;

• what were the mix in hydro-thermal projected and actually received? What was the cost of hydro power and what was the quantum of hydro power? What were the cost changes for hydro power against projected and approved by Commission?

• Higher volume of power actually purchased was due to laxity and nonperformance of HVPNL. Larger power purchases were squandered in T&D losses and free power.Why should the paying consumers be loaded with costs which ought not to be have been made?

• In some quarters HVPNL has purchased more power than projected but sold less than projected, thereby taking a huge loss. Should the consumer be allowed to be exploited by a monopoly supplier?

• Any business has to manage its own resources for its maximum advantage. Having mismanaged, it cannot claim the magnanimity of the Commission to pull it out from its own made mess, created and cumulated over a period of time.

• Fuel cost recovery is not tenable as HVPNL does not generate power.

Gurgaon Chamber of Commerce and Industries also submitted that it was difficult to submit a detailed and studied response because of short notice. It suggested that at least 45 days of notice should be given. It also requested that all interested organisations particularly the industrial associations should be provided with a copy of the relevant documents. The Chamber also submitted that the fuel efficiency of utilities in Haryana is low and all relevant statistics should be provided to the organisations like them along with the steps proposed or being undertaken to improve the same. It further submitted that as a matter of prudent policy, the industrial consumers should be charged at par with all other consumers. The Chamber believes that the objective of reforming the power sector in the state is to protect the consumers by providing them electricity produced at the lowest possible cost and sold at reasonable rates. Transparency of decision-making is another ingredient of the reforms. It further submitted that the high power tariff in Haryana has particularly aggrieved the entrepreneurs of Haryana. It finally requested that the proposal of HVPNL should be kept in abeyance until these concerns are duly addressed.

G.T. Road Industries Association submitted that the time allowed for submitting comments was short and requested for extension of time.

The Commission has taken note of these comments. Some of the points which are relevant to the issue will be taken up at the time of hearing of tariff application filed by HVPNL. As a matter of fact, the tariff applicable at present is the one approved by erstwhile HSEB in June 1998. The Commission is not aware of the methodology of that tariff determination nor of the cost component of purchased power (including generation of the erstwhile HSEB) included in June 1998 tariff. The Commission has, therefore, for the present FSA determination relied upon the ARR 1999-2000 approved by the Commission as explained in subsequent paragraphs.

Tariff Regulations require the licensee to adjust the fuel surcharge quarterly. However, HVPNL has filed an application involving adjustment for the entire financial year 1999-2000. HVPNL has submitted the following facts in favour of a filing covering several quarters:

• The responsibility for initiating the proposal for a recovery rests with the licensee;

• The Tariff regulations were issued on November 10, 1999 and published in the gazette on November 23, 1999. The first ARR orders for the financial year 1999-2000 were passed on November 26 and 29, 1999 and the Commission indicated that increases in power purchase costs are recoverable through FSA. The timing and finalisation of the regulations sufficiently in advance of the ARR order confirms that the option presented in the ARR order – an FSA filing covering multi-quarter period - is consistent with the FSA regulations.

• To ensure that the consumers are not subjected to any unreasonable hardship on account of pass through of FSA, the licensee proposes to recover the amount over a period of 12 months and not in one quarter.

• The Commission issued the Order on Review Petition on May 29, 2000, which clarified certain key parameters including the loss levels to be considered for the FSA calculations.

• The licensee has incurred these costs in FY 1999-2000 and is facing great hardship in the absence of price adjustment to reflect these costs.

The Commission observes that since the publication of Tariff Regulations, considerable time has elapsed but the licensee did not show any urgency to levy theb FSA. The Commission Order on Review Petition also made observation in this regard. The Commission expects the licensee to operate economically and manage its functions efficiently. The purpose of the FSA mechanism is defeated if the licensee does not care to adjust timely the over (or under) expenditure in respect of power purchase cost. The Commission does not appreciate the delay by HVPNL in filing the application for FSA. In future, the Commission would expect that the licensee will file the FSA timely and quarterly. As a special case, the Commission is allowing a multi-period application this time.

FSA formula specified in the Tariff Regulations assumes that the existing tariffs are based on the Commission’s determination of the licensee’s total cost in a tariff filing. The FSA is intended to adjust the purchased cost component of that determination based on differences between actual purchased power costs and the charges a licensee has recovered from its tariffs. In the case of this FSA filing, however, because the existing tariffs were not determined by the Commission and are not based on a determination of the licensee’s costs, it is not possible to follow the Tariff regulations precisely. Consequently,the Commission has decided to depart from certain provisions of the said regulations.

4. Instead, the Commission is adopting the following method for determining the admissible amount of FSA for this application:

The actual sales reported by HVPNL in its FSA application has been adjusted for the HERC approved losses, as indicated in the ARR Orders and ARR Review Order, to arrive at the required power purchase volume corresponding to the approved level of losses. The allowed volume of power purchase is limited to this volume only, for purposes of the FSA calculation.

2. Source-wise allocation of allowed volume of power obtained in (a) has been made using the logic indicated below:

An initial allocation of power purchased from various sources has been made such that

• if the volume of power purchased from any source is less than or equal to the volume approved by the Commission in the ARR, then the actual power purchase volume has been taken as approved;

• if the volume of power purchased from any source is more than the volume approved by the Commission in the ARR Order, then the volume approved by the Commission in the ARR has been taken for the initial allocation.

If the total volume of initial allocation is less than the volume determined in (a), the gap between the two has been bridged by allocating the additional power from those sources from where HVPNL purchased power beyond the level approved in the ARR Order.

For bridging the gap mentioned in (c) above, in-state source of power, which are of dedicated nature, are given preference over others. These generators are required to sell their power only to HVPNL and consequently, any additional power available from them has to be purchased by HVPNL. Thus, HPGCL units are allocated first and the balance is allocated to Faridabad gas. The Commission recognises that cost-wise these are not the least cost power and the additional power from these sources would not have been selected on strict merit order. In a merit order selection, the highest-cost sources would be ranked last,and that power from the high-cost sources would not have been purchased if HVPNL had achieved the level of power losses that the Commission designated in its order. Considering the specificity of the in-state sources of power, the Commission is making a one-time exception for this FSA and allowing additional power from in-state sources even though their cost is high. In any future filing, HVPNL should demonstrate that its purchase of power from high-cost sources can be justified on merit order.

Allowed volume of power from a source is the sum of initial allocation and additional allocation, if any, from a source. Sum of allowed volume of power from each source is equal to the allowed power purchase.

Actual allowed cost of power source-wise is determined by multiplying the allowed volume determined in (e) for each source and the actual cost per kWh paid by HVPNL. Sum of such source-wise costs gives the actual permissible cost of power for the allowed volume of power.

Cost of power at ARR approved rate for each source is obtained by multiplying the volume in (e) with ARR approved cost of power per kWh. Sum of such costs give the ARR approved cost of power.

8. FSA to be recovered is determined by difference between the actual cost and the ARR 1999-2000 approved cost [i.e. sum found in (e) less sum found in (g).].

For the present FSA application, the above method yields the following results:

1. the volume of sales in 1999-2000 has been reported at 9820,13 MU. The Commission approved combined transmission and distribution loss is 29.75%. The required power purchase volume comes to 13,978.83 MU.

2. Initial allocation of power purchase following the logic mentioned in step (b) above accounts for 13,781.98 MU. A gap of 196.85 MU remains.

3. Additional power from HPGCL and Faridabad gas are allocated next.

4. The actual cost of allowed power purchase comes to Rs. 21,324.69 Million. The cost of same volume of power urchase at ARR approved rates is Rs. 20,034.58 million.

5. FSA recoverable through tariff is Rs. 1,290.11 million.

The Commission approves recovery of Rs. 1,290.11 million through this FSA. Annex 1 provides the details of this calculation.

The Tariff Regulations do not specify any particular method of recovery of surcharge but prescribe that the FSA shall be allocated to each class of customers or consumers using the energy cost allocation factors for each class contained in the currently approved tariff. However, at present no energy cost allocation factor exists as the existing tariffs were not determined by the Commission and are not based on a determination of the licensee’s costs. Since, the ARR order reports only total costs, it is of no help in dealing with the allocation issue.

HVPNL has suggested that the surcharge amount will be recovered over the current financial year, i.e. 2000-2001. HVPNL has proposed a uniform percentage increase in existing tariff rate for all consumer categories. Thus the proposal suggests creating three surcharge levels: 3 paise per unit for agriculture,13 paise per unit for domestic consumers and 21 paise per unit for the rest.

The method adopted by HVPNL for calculating the recoverable FSA from different categories of consumers maintains the existing level of cross subsidy in the present tariff structure. Since tariff application submitted by HVPNL is already under the consideration of the Commission and the issues relating to cross subsidy will come up for discussion at the open tariff hearings, the Commission has decided for the purpose of this FSA, to accept the method adopted by HVPNL for the recovery of FSA.

HVPNL calculation of the surcharges required to recover the adjustment is based on its sales for FY 2001 projected in its ARR filing for that financial year. That projection is based on a loss level of 33% while the loss reported for FY 2000 in the FSA application is 36.56%. If losses continue at their FY 2000 level, HVPNL is unlikely to achieve the sales volume that it has projected, and the surcharges that it has proposed will not be adequate to recover the adjustment.

An FSA is intended to be an expeditious and largely mechanical proceeding.If HVPNL has in fact been over-optimistic in its sales projections, the resulting under-recovery of its purchased power costs will be captured in future FSA filings. Therefore the Commission, for the purpose of this FSA application, accepts HVPNL’s projection.

7. The Commission has considered HVPNL’s calculation of FSA rates and observes the following:

HVPNL has presented a combined projected consumption for agriculture and irrigation, although lift irrigation has a separate tariff rate. Since HVPNL has used a uniform rate of 50 paise for agriculture and irrigation, its projected revenue comes less. The Commission has separated agriculture from irrigation. Projected sales to irrigation for FY 2000-2001 has been assumed to be same as the actual sales in FY 1999-2000. The Commission has applied appropriate rates for the two categories.

The consumption by HVPNL for its offices and workshops has not been considered for FSA by HVPNL. The Commission considers that any consumption by HVPNL should attract commercial rates and the expenditure should be charged to A&G expenses. The Commission therefore has applied the existing tariff for non-domestic consumers to the so-called free supply and accordingly FSA rate has been calculated.

8. After incorporating changes mentioned in the preceding paragraphs, the Commission has arrived at the following FSA rates:

 

For agricultural consumers and MITC	: 3 paise/ unit;
For lift irrigation	: 11 paise/ unit;
For domestic consumers	: 13 paise/ unit;
For HT Industry, Street light and Public water works	: 20 paise/unit;
For all other consumers	: 21 paise / unit.

In arriving at these rates, the Commission has made minor adjustment in the case of H.T. Industries who receive power at higher voltages and hence impose lower losses on the system. Similar adjustments have been made in case of street lighting and Public Water Works as they serve the general public.

Table 2 provides the Commission approved rates and the category-wise surcharge recovery contemplated in this order.

Table 2 : Commission approved FSA rates and expected surcharge recovery

Any under/over recovery will be adjusted in the next FSA.

Dated: 27/07/2000 at Panchkula  

(V.S. AILAWADI)
CHAIRMAN

(R. CHANDRA)
MEMBER

(K.S. CHAUBE)
MEMBER