BESCOM- Preliminary Observations on APR for FY15 and ARR of FY17-19
- Capital Expenditure:
a)Capital Expenditure for FY15:
In the Commission’s Order dated 12thMay, 2014, an amount of Rs.763 Crores was approved towards capex for FY15, against the proposed capex of Rs.2199 Crores.In the replies to the preliminary observations made on the tariff application for FY16, the BESCOM had submitted that it is yet to prepare DPRs for major category works costing Rs.1170 Crores and hence the increased capex proposal of Rs.2199 Crores were not considered for the purpose of projecting the capital expenditure, gross assets, net asset, depreciation and interest on loans. In view of this, the Commission had retained the capex of Rs.763 Crores, approved for FY16, in Commission’s Order dated 12th May, 2014. The Commission had directed that, if the BESCOM has any additional proposal, as indicated in the capex programme, approval for the same shall be sought separately. It was also stated in the Tariff Order dated 12th May, 2014 that, the Commission would look into the merits of such investments and decide on its allowance. It is observed that, the BESCOM has incurred a capex of Rs.1474.58 Crores,which is in excess of the approved amount by 93%. The BESCOM has not sought any approval for incurring this amount despite specific directions in the Tariff Order dated 14th May, 2014.Further, in page no. 116 of the filing, the amount of capital deployed for FY15 is indicated as Rs.1495.00 Crores. Inconsistencies in the figures reported needs to be clarified.
The Commission notes that, the capex beyond approved figures would involve additional interest and depreciation affecting the approved ARR and retail supply tariff. Hence, the BESCOM shall give reasons for incurring additional capex beyond the approved capex without prior approval of the Commission,despite specific directions to that effect. The BESCOM is required to furnish details of sources of funding (like grants, debt, equity and internal sources) of the additional capex incurred beyond the approved capex along with the details of additional interest and depreciation, thereon.
In Form D17, the capital expenditure incurred for FY15 is indicated as Rs.1782.85 Crores whereas Rs.1474.58 Crores is shown as expenditure against approved capex on page 21. Further, the assets categorized for the FY15 have been shown in Format D17 & D15 as Rs.1645.02 Crores. The expenditure capitalized towards Plant & Machinery and Lines & Cables, is indicated as Rs.1445.17 Crores in Format D16. Also, there is a huge difference in capex achievement in the following categories and the BESCOM needs to furnish the detailed explanation for deviations viz.:
- UnderE&I works (additional DTCs) Rs.54.13 Crores was incurred as against the approved cost of Rs.40 Crores, which is 35% more than approved amount.
- Under E& I Works(HT and LT reconductoring, Providing AB cable, Spill-over, Urgent works, Emergency and T&P etc.,) Rs.195.75 Crores has been incurred as against the approved cost of Rs.153 Crores, which is 28% more than approved amount.
- UnderLocal planning Rs.31.30 Crores wasincurred as against approved cost of Rs.20 Crores, which is 56% more than approved amount.
- UnderMetering program Rs.193.16 Croreswas incurred as against the approved cost of Rs.95 Crores, which is 103% more than approved amount.
- Under Replacement of Faulty transformers by new Transformers Rs.101.54 Crores wasincurred as against the approved cost of Rs.15 Crores, which is nearly 7 times more than approved capex.The BESCOM should note that, the failed transformers should be replaced by repaired transformers in good condition only and it should be charged to revenue expenditure. In case the failed transformer is scrapped then only it can be replaced by a new transformer which can be booked under the capex. Hence, the BESCOM shall furnish the division wise details for the FY15 as per the Format below:
Particulars / Capacity of Transformers / Divn-1 / Divn-2 / Divn… / Total
Nos / Amount / Nos / Amount / Nos / Amount / Nos / Amount
No. of transformers failed / 250
100
63
25
No. of transformers scrapped / 250
100
63
25
Total No. of Transformers Repaired / 250
100
63
25
Balance failed Transformers to be repaired ( including OB) / 250
100
63
25
Total No. of Repaired Transformers used for replacement of failed Transformers / 250
100
63
25
Total No. of new transformers provided for replacement of failed transformer / 250
100
63
25
- Forproviding infrastructure to UnauthorizedIP sets Rs.166.77 Croreshas been incurred as against the approved cost of Rs.60 Crores, which is nearly 3 times more than approved amount.
- UnderHVDS Rs. 248.96 Croreshas been incurred as against the approved cost of Rs.120 Crores, which is more than 2 times the approved amount.
- ForCivil Engineering works and DSM Rs.29.36 Crores has been incurred as against the approved cost of Rs.25 Crores, exceeding the approved amount.
b) In Distribution Automation System (DAS),it is observed that, theBESCOM has been incurring expendituresin the past few yearsright from the date of inception of the project. For FY15, the BESCOM has incurred capex of Rs.50.52 Crores on DAS. The BESCOM is required to submit year-wise physical and financial progress besides furnishing latest status and the benefits accrued from the implementation of the DAS.
c) Prudence check of capital works for FY10 to FY12 & FY13 - FY14:
During prudence check of completed and categorized works pertaining to FY10 to FY12, the Commission had disallowed interest and depreciation in respect of cost of two works in the Tariff Order dated 2nd March, 2015. Similarly, interest and depreciation in respect of two works pertaining to FY13 and FY14 were also disallowed.In order to decide on the prudence of these investments during FY15, the BESCOM shall furnish current status of these works.
d) Capital Expenditure for FY17 – FY19:
i) The BESCOM has proposed capex for FY17 to FY21 in which the capex for the 4th control period, i.e., FY17, FY18 and FY19 is proposed are Rs.1529 Crores, Rs.967.30 Crores and Rs.713.20 Crores respectively. The details of the capex under various heads proposed for FY17 to FY21 are shown in the table below:
Sl No. / Particulars / FY -17 / FY -18 / FY -19 / FY -20 / FY -211 / 11 KV Evacuation & Link Lines / 68.32 / 72.05 / 78.06 / 93.8 / 86.51
2 / Safety and Strengthening of HT/LT network including OH/UG cable and AB cable works / 34.37 / 38.33 / 43.15 / 53.22 / 47.72
3 / HT Reconductoring / 27.95 / 29.6 / 30.87 / 35.7 / 33.63
4 / LT Reconductoring / 30.77 / 29.63 / 26.71 / 27.29 / 25.08
5 / Providing Additional DTC's/Enhancement of DTC's / 50.49 / 48.83 / 44.8 / 46.91 / 42.98
6 / Planned works (RE / SCP / TSP/Drinking Water Gangakalyana and service connection) / 52.27 / 47.21 / 45.48 / 44.31 / 40.33
7 / Local Planning / 37.2 / 36.01 / 34.91 / 38.27 / 34.25
8 / RMU Works / 3.89 / 4.232 / 3.827 / 4.136 / 3.931
9 / Safety Measures/ Hazardous (shifting DTC at school premises) / 12.2 / 12.74 / 11.76 / 12.43 / 11.35
10 / OH to UG Conversion / 2.19 / 2.10 / 1.98 / 1.98 / 1.84
11 / Infrastructure to Unauthorized IP sets / 19.95 / 5.19 / 3.27 / 3.86 / 3.29
12 / Providing & replacement of RMUs / 0.62 / 0.59 / 0.56 / 0.56 / 0.52
13 / Replacement of meters, Smart meters, replacement of HTMC of HT installation / 34.65 / 23.77 / 8.75 / 6 / 6
14 / DTC Metering programme / 2.25 / 2 / 1.75 / 1.5 / 1.5
15 / IPDS / 357 / 100 / 100 / 100 / 100
16 / DDUGJY / 330 / 100 / 100 / 100 / 100
17 / HVDS / 100 / 100 / 100 / 100 / 100
18 / NJY Phase-3 / 250 / 250 / - / - / -
19 / DSM / 64.51 / 64.97 / 77.3 / 72.9 / 58.69
Total / 1529 / 967.3 / 713.2 / 742.9 / 697.6
From the above table, it is observed that, the total proposed capex for FY17 works out to Rs.1478.63 Crores as against Rs.1529 indicated by the BESCOM. The arithmetical error needs to be examined.
ii) The BESCOM has proposed a capex of Rs.1529.00 Crores for the FY17 and reduced the same to Rs.967.30 Crores for the FY18 and Rs.713.20 Crores for FY19. It is observed that, the BESCOM had made a similar progressively reduced capex proposal in the earlier control period. However, in the annual tariff petitions, the MYT capex proposal were revised with higher investment proposals. The BESCOM shall explain as to why such a progressively reduced capex is proposed for the FY18 and the FY19 as compared with the FY17.
iii) The huge outlay proposed for the FY17 under IPDS, DDUGJY, HVDS, NJY phase-3 needs to be justified with full facts and figures about the status of preparation of DPRs, tendering and work award.
iv) In respect ofthe DSM works, the BESCOM has proposed Rs.64.51 Crores for the FY17 and FY18 as capex. The details of the DSM programme to be taken up needs to be furnished. The BESCOM shall also clarify as to the nature of assets being created to carry out the DSM programme.
v) In respect of the DTC metering, the BESCOM needs to furnish the achievements (both physical and financial) made under this category over the last three years.The BESCOM needs to confirm whether it will be able to complete the DTC metering with the proposed capex during the control period.
vi) TheBESCOM shall furnish the sources of funding such as grants from Central/ State Governments, internal sources, borrowings and equity, to meet the capex for the control period.
- Sales:
a) Observations on Sales for FY15:
i) The Commission in its Tariff order 2014-15, dated 12.05.2014, had approved total sales of 25395.08 MU in respect of various consumer categories, as against the BESCOM’s proposal of 25868.25 MU. The Actual sales of the BESCOM as per the current APR filing[d-2 FORMAT] is 24436.06 MU, indicating a short fall in sales to an extent of 959.03 MU, as compared with the approved sales, resulting in reduction in sales by 43.68 MU to LT-categories and by 918.08 MU to HT-categories.
It is noted that, as against approved sales of 19619.67 MU to categories other than BJ/KJ and IP sets, the actual sales achieved by the BESCOM is 18452.31 MU, resulting in the reduction of sales to these categories by 1167.37 MU. Further, the BESCOM has sold 5983.75 MU to BJ/KJ and IP category as against approved sales of 5775.41 MU resulting in increase in sale to these categories by 208.34 MU.
The actual share of sales to categories other than BJ/KJ and IP sets, is 75.51% as against the estimated share of 77.26% resulting in reduced share of sales by 1.75percentage to these categories, while the actual share of sales to BJ/KJ and IP sets has increased by the same percentage.
The category wise sales proposed by the BESCOM, approved by the Commission and the actuals for the FY15 are indicated in the below table
Category / Approved / Actuals / Difference(Actuals-Approved)LT-2a* / 5703.77 / 5760.3 / 56.53
LT-2b / 38.95 / 40.82 / 1.87
LT-3 / 1719.96 / 1663.32 / -56.64
LT-4b / 8.47 / 1.87 / -6.6
LT-4c / 4.71 / 6.58 / 1.87
LT-5 / 1277.47 / 1134.28 / -143.19
LT-6 / 534.59 / 431.06 / -103.53
LT-6 / 432.62 / 388.94 / -43.68
LT-7 / 150.37 / 194.45 / 44.08
HT-1 / 629.29 / 664.24 / 34.95
HT-2a / 5564.71 / 4750.15 / -814.56
HT-2b / 3337.63 / 2795.89 / -541.74
HT-2c / 9.48 / 189.31 / 179.83
HT-3a & b / 19.95 / 18.26 / -1.69
HT-4 / 128.65 / 127.25 / -1.4
HT-5 / 59.06 / 285.59 / 226.53
Sub total / 19619.67 / 18452.31 / -1167.36
BJ/KJ / 62.44 / 53.45 / -8.99
IP / 5712.97 / 5930.3 / 217.33
Sub total / 5775.41 / 5983.75 / 208.34
Grand total / 25395.08 / 24436.06 / -959.02
*Including BJ/KJ installations consuming more than 18 units/month
From the above table it is noted that the major categories contributing to the reduction in sales, with respect to the approved sales are; LT industrial (143.19 MU), LT Water Supply (103.53 MU), HT Industries (814.56 MU) and HT Commercial (541.74 MU). On the other hand major categories contributing to the increase in sales with respect to the approved sales are LT 2(a) (124.40 MU), HT2(c) (179.83 MU), HT5 (226.53 MU) and IP Sets (217.33 MU).
ii) As regards sales to IP sets, the Commission notes that, the overall sales has increased by 217.33 MU as against the approved sales of 5712.97 MU as per Tariff Order dated 12th May 2014 for FY15. Further, the Commission had approved the specific consumption of IP Sets as 8284 units / installation / annum. As per the consumption reported in format D2 of the filing by the BESCOM, the specific consumption works out to 8121 units / installation/annum for the FY15. This indicates a slight decrease of 163units / installation/annum in specific consumption.
In the light of the above the BESCOM shall furnish the following:
i) The increase in sales to IP set category even though the specific consumption has come down shall be explained.
ii) The Commission in its Tariff Order dated 12th May, 2014 had directedthe BESCOM to furnish feeder wise IP Set consumption based on feeder energy meter data to the Commission, every month in respect of agriculture feeders segregated under NJY. Therefore, the BESCOM is required to justify its claims of the IP set consumption for the FY15 as per the energy recorded on the segregated feeders. The BESCOM shall furnish necessary data in support of its claims of IP consumption for FY15.
iii) Analysis of the reasons for reduction in sales to HT categories. In this regard BESCOM shall furnish the data of sales to HT2(a) and HT2(b) categories along with the consumption from open access / wheeling for the period 2012-13 to 2014-15 in the following format:
Million Units
Year /Energy procured by consumers from BESCOM / Energy procured by consumers under open access / wheeling / Total
2012-13
2013-14
2014-15
iv) In order to estimate the impact of shifting of installations from HT2a, HT2b and HT-4 to HT-2c, the number of installations shifted from these categories and the corresponding sales figures shall be furnished for FY14 and FY15.
b) Observations on Sales estimation for FY17 – FY19:
i) Category wise sales for the control period:
a)The BESCOM in its filing has stated that the number of installations has been estimated for the control period by considering the four year CAGR with following exceptions:
- For LT2(b), 3 years CAGR is considered
- For LT5, 1 year CAGR is considered
- For LT7, 1 year CAGR is considered
- For HT2(c) the growth rate of HT2(b) is considered as this tariff category was carved out of HT2(b) tariff category
- For HT3 (a) and HT3(b), no increase in number of installation is considered.
- For HT5, the growth rate of LT7 is considered i.e. 24% as this tariff category was carved out of LT7 tariff category.
b)Further, the BESCOM has stated that, the sales have been estimated for the control period considering four year CAGR with following deviations:
- Actual category wise sales of FY14 and FY15 are considered for projections.
- Half yearly sales i.e. cumulative DCB of Sept-15 is considered.
- In respect of BJ/KJ, no new schemes are announced by the GoK. Hence the consumption of the FY15 is retained for the future years.
- Projection of agriculturalconsumptionis based on specific consumption.The Commission had approved 7795 units/IP/annum for the FY16. But, the BESCOM has considered the specific consumption of 8122 units / IP/ annum for FY16, FY17, FY18 and FY19 to arrive at the agricultural consumption. The BESCOM has considered an increase of 25,000 consumers for the second half of FY16. Upto Sept-15, 30,003 IP set installations are added. The BESCOM has considered 30,000 consumers for each year of the control period i.e. FY17, FY18 and FY19.
- In respect of LT4(b) the 4 year CAGR is – 12%. Hence the sales for the FY16 are retained for all the years of projection. The sale under this category is very miniscule and there is less impact on the total annual sales from this category.
- The 4 year CAGR for LT6 water supply and LT6 Street light is -2.7% and -2.1%. Hence 5 years CAGR of 0.3% and 0.6% are considered.
- For HT industrial and commercial consumers 4 year CAGR is considered for projections as there is decline in growth rate of these consumers in the recent years.
- HT2(c) category is a new tariff category. For HT2(c), HT2 (b) growth rate of 1.4% is considered (as it was billed under this category earlier).
- In case of HT3 (a) and HT3 (b) the 4 year CAGR shows abnormal growth. The consumption under these categories is not major. Hence, no growth rate is considered.
- In respect of HT4, the 4 year CAGR is -3.4%. Hence 6 years CAGR of 1.6% is considered.
- HT5 category is a new tariff category. For the HT5 category growth rate of LT7 category i.e. 8% is considered as it was part of LT7 category earlier.
ii) The observations of the Commission on sales forecast for the control period are as follows:
a) The BESCOM has submitted a load forecast and Business Plan on 17.08.2015. It is observed that, the estimate of sales for the period FY16 to FY19 submitted therein differs considerably from estimate made in the tariff application as indicated below:
Year / As per load forecast and Business Plan / As per Tariff ApplicationFY16 / 25336.00 / 26082.80
FY17 / 26677.10 / 27540.40
FY18 / 28113.40 / 29082.50
FY19 / 29652.40 / 30715.50
The reason for deviation shall be explained and further it shall be clarified as to which estimate needs to be reckoned for the purpose of sales estimation for FY17-19.
b) LT(1) – BJ/KJ category:
The BESCOM has not indicated any increase in the number of installation in this category from FY16 onwards, even though 17,094 installations and 37,123 installations were added in FY14 and FY15 respectively. Considering the various schemes like DDUGJY being implemented and the addition of installation that has happened in the previous years, retaining the number of installations in this category at the same level may not be logical. BESCOM shall relook into the matter and propose suitable modifications to the sales projections. Further, to estimate the sales in this category, the breakup of installations consuming less than or equal 18 units and above 18 units shall be furnished for the 2014-15 and estimates for FY16 to FY19 in the following format:
Particulars / No. of Installations / Consumption in MUInstallations Consuming less than 18 Units
Installations consuming more than 18 units and build under LT 2a
The table indicating the growth rates for the no. of installations as furnished by BESCOM is as under:
Category / Percentage Growth RatesFY10 to FY15 (5yr CAGR) / FY12 to FY15 (3yr CAGR) / FY15 growth over FY14 / Growth rate proposed by BESCOM
LT-2a / 5.03 / 5.56 / 5.21 / 5%
LT-2b / 4.67 / -7.58 / 1.44 / 4%
LT-3 / 5.53 / 5.56 / 4.83 / 5%
LT-5 / 4.71 / 4.60 / 3.58 / 4%
LT-6 WS / 9.79 / 10.78 / 12.11 / 10%
LT-6 SL / 4.60 / 4.51 / 4.29 / 5%
LT-7 / 29.79 / 32.6 / 31.03 / 24%
HT-1 / 11.66 / 11.43 / 15.00 / 12%
HT-2 (a) / 8.24 / 8.13 / 8.32 / 8%
HT-2 (b) / 7.97 / 6.12 / 5.39 / 6%
HT-3(a)& (b) / 7.71 / 5.07 / 26.09 / 0
HT-4 / 5.76 / 4.35 / 12.44 / 6%
It is noted that:
- The growth rates considered for LT2(b) is on the higher side considering the previous year growth rate of 1.44% and the negative CAGR between 2010-12 to 2013-15
- The growth rates considered for LT6 street light is on the higher side considering the previous year growth rate of 4.29% and the CAGR in the range of 4.51% to 4.60%
- No additions to HT3 (a) and HT3(b) category is proposed during the control period, though there is a positive growth rate in the recent past. The BESCOM shall relook into the matter and proposed suitable modifications to the projections. Correspondingly the sales shall also be modified.
- The number of installations for LT4 at page 2 of the filing is indicated as 770469 as against 770451 indicated in D2 format. Similar inconsistency is noted in case of LT5. Further sales to LT(2) category is indicated as 5718.72 MU at page 2 as against 5801.12 MU in D2 format. The figure shall be reconciled.
The table indicating the growth rates for the energy sales is furnished below:
Category / Percentage Growth RatesFY10 to FY15 (5yr CAGR) / FY12 to FY15 (3yr CAGR) / FY15 growth over FY14 / Growth rate proposed by BESCOM
LT-2a / 8.63 / 8.44 / 10.57 / 7.8%
LT-2b / 8.69 / -0.41 / 12.39 / 0.9%
LT-3 / 9.51 / 7.65 / 8.22 / 7.9%
LT-5 / 4.45 / 2.80 / 2.24 / 3.2%
LT-6 WS / 3.91 / -2.17 / -7.71 / 0.3%
LT-6 SL / 4.95 / -1.05 / -1.40 / 0.6%
LT-7 / 15.96 / 15.37 / 31.6 / 8%
HT-1 / 6.33 / 10.57 / 8.37 / 8.1%
HT-2 (a) / 6.31 / 2.87 / -6.29 / 1.6%
HT-2 (b) / 5.08 / 1.84 / -2.09 / 1.4%
HT-3(a)& (b) / 61.35 / 42.05 / 98.05 / 0%
HT-4 / 6.31 / 2.49 / 15.95 / 6%
It is noted that:
- The growth rates considered for LT2(a) is lower considering the previous year growth rate of 10.57% and the CAGR in the range of 8.44% to 8.63%.
- The growth rates considered for LT2(b) is lower considering the previous year growth rate of 12.39% and the CAGR of 8.69% for the period FY10 to FY15.
- In FY15, even though there is a positive growth in the number of installations in respect of LT6 water supply and street light, the energy sales to these categories has come down. The reasons for the same shall be analyzed division wise and furnished.
- In case of LT4(b), even though there is an increase the number of installations during the control period the sales is retained at the same level. Similarly in case of LT7, it is noted that in FY18 even though the number of installations has increased, there is a decrease in sales. The reasons for the same shall be furnished.
- The growth rates considered for LT(7) is lower considering the previous year growth rate of 31.6% and the CAGR in the range of 15.37% to 15.96%.
- In case of HT2(a) even though there is a negative growth rate in FY15 due to reclassification tariff schedule, the normal CAGR is in the range of 2.87% to 6.31%. Thus the growth rate considered is on the lower side and BESCOM shall endeavor to achieve higher sales to this category to increase their revenue. The same shall be examined and relooked with necessary details.
- The sales for LT2(b) indicated in Table 4.9, LT4(c) indicated in Table 4.12 and HT2(c) indicated in Table 4.20 does not tally with D2 format.
BESCOM has proposed additional sales as indicated below to account for energy not supplied due to missing hours considering the prevailing power system for the control period also: