SECTION 1
INTRODUCTION
1.1 This order relates to the applications submitted by the Himachal Pradesh State Electricity Board (HPSEB) to the Himachal Pradesh Electricity Regulatory Commission (HPERC) for the determination of Annual Revenue Requirement (ARR), Transmission & Bulk Supply tariff and Distribution & Retail Supply tariff for the FY 2004-05.
Legal provisions
1.2The Electricity Act 2003 (36 of 2003) (hereinafter referred to as the Act) which has come into force with effect from June 10 2003 is the governing legislation for electricity sector, repealing the Indian Electricity Act, 1910; the Electricity (Supply) Act, 1948, and, the ERC Act, 1998. Among the tariff related provisions, the State Electricity Regulatory Commission (SERC) has to be guided by the National Electricity Policy and the National Tariff policy. The generation, transmission and distribution tariff have to be determined separately, and the SERC has to take into account the principles and methodologies specified by the Central Commission for generation and transmission tariff. However, the relevant provisions as per the Electricity (Supply) Act, 1948 and the ERC Act, 1998 shall continue to be applicable for a period of one year after the enactment of the Act or until the terms and conditions related to the tariff as specified under the Act are finalised, whichever is earlier.
The Act provides the functions of SERC under Section 86, which is extracted here below:
(1) “The State Commission shall discharge the following functions, namely: -
(a)determine the tariff for generation, supply, transmission and wheeling of electricity, wholesale, bulk or retail, as the case may be, within the State:
Provided that where open access has been permitted to a category of consumers under section 42, the State Commission shall determine only the wheeling charges and surcharge thereon, if any, for the said category of consumers;
(b)regulate electricity purchase and procurement process of distribution licensees including the price at which electricity shall be procured from the generating companies or licensees or from other sources through agreements for purchase of power for distribution and supply within the State;
(c)facilitate intra-state transmission and wheeling of electricity;
(d)issue licences to persons seeking to act as transmission licensees, distribution licensees and electricity traders with respect to their operations within the State;
(e)promote cogeneration and generation of electricity from renewable sources of energy by providing suitable measures for connectivity with the grid and sale of electricity to any person, and also specify, for purchase of electricity from such sources, a percentage of the total consumption of electricity in the area of a distribution licensee;
(f)adjudicate upon the disputes between the licensees and generating companies and to refer any dispute for arbitration;
(g)levy fee for the purposes of this Act;
(h)specify State Grid Code consistent with the Grid Code specified under clause (h) of sub-section (1) of section 79;
(i)specify or enforce standards with respect to quality, continuity and reliability of service by licensees;
(j)fix the trading margin in the intra-State trading of electricity, if considered, necessary;
(k)discharge such other functions as may be assigned to it under this Act.
(2) The State Commission shall advise the State Government on all or any of the following matters, namely: -.
(i)promotion of competition, efficiency and economy in activities of the electricity industry;
(ii)promotion of investment in electricity industry;
(iii)reorganisation and restructuring of electricity industry in the State;
(iv)matters concerning generation, transmission , distribution and trading of electricity or any other matter referred to the State Commission by that Government.”
Regulations/Guidelines notified by the Commission
1.3The Commission has issued the following Regulations/ Guidelines/Orders since the tariff order of FY 2001-02.
(i)The Himachal Pradesh Electricity Regulatory Commission (Guidelines for Establishment of Forum for Redressal of Grievances of the Consumers) Regulations, 2003 (October 23 2003)
These regulations, notified as per section 181 read with sub-section (5) of section 42 of the Act, provide for the procedure for constitution and jurisdiction of the forum, and redressal of grievances of the consumers.
(ii)Himachal Pradesh Electricity Ombudsman (Terms and conditions of service of officer and employee) Regulations, 2004 (April 5, 2004)
These regulations notified under sub- section (1) of section 181 of the Act provide for the number and categories of the officers and the staff required for the office of the Electricity Ombudsman, their pay scales, qualifications and the selection procedure.
(iii)Himachal Pradesh Electricity Regulatory Commission (Electricity Ombudsman) Regulations, 2004. (April 29, 2004)
These regulations notified under section 181 read with sub-section (7) of section 42 of the Act lay down the procedure for appointment of the Ombudsman, his powers &duties and procedure for redressal of grievances of the consumers.
(vi) Himachal Pradesh Electricity Regulatory Commission (Terms and Conditions for Determination of Tariff) Regulations, 2004. (June 8, 2004)
These regulations, notified under sub- section (1) and clause (zd) of sub-section (2) of section 181 of the Act provide the general guiding factors for determination of tariff and filing of Aggregate Revenue Requirement, Capital Investment, Financing Costs, Rate Base, O&M Expenditure, Depreciation, Distribution loss, Power procurement and purchases, Bulk Supply Tariff and Differentiated Generation and Transmission Tariffs, Wheeling, Surcharge, Quality of Service and Standards of Performance of the licensee.
(v) Himachal Pradesh Electricity Regulatory Commission (General Conditions of Distribution Licence) Regulations, 2004. (June 8, 2004)
These regulations, notified under section 16, read with clause (d) of sub-section (2) of section 181 of the Act, set out the conditions within which the distribution licensee will carry out its functions.
(vi) Himachal Pradesh Electricity Regulatory Commission (General Conditions of Transmission Licence) Regulations, 2004. (June 10, 2004)
These regulations have been notified under section 16, read with clause (d) of sub-section (2) of section 181 of the Act and set out the conditions within which the transmission licensee will carry out its functions.
(vii)Himachal Pradesh Electricity Regulatory Commission (General Conditions of Trading Licence) Regulations, 2004. (June 10, 2004)
These regulations notified under section 16, read with clause (d) of sub-section (2) of section 181 of the Act set out the conditions within which the trading licensee will carry out its functions.
(viii)Himachal Pradesh Electricity Regulatory Commission (Guidelines for establishment of Forum for Redressal of Grievances of the Consumers) (First Amendment) Regulations, 2004. (June 21, 2004)
These regulations notified under Section 181, read with sub-section (5) of section 42 of the Act, amend the Himachal Pradesh Electricity Regulatory Commission (Guidelines for Establishment of Forum for Redressal of Grievances of the Consumers) Regulations, 2003.
(ix)Himachal Pradesh Electricity Regulatory Commission (Licensee’s Duty to Supply Electricity on Request) Regulations, 2004. (June 21, 2004)
These regulations notified under sub-section (1) of section 181, read with sub-section (1) of section 43 of the Act prescribe the duties of the licensees in respect of supply of electricity on request and the consequences on default.
(x)Himachal Pradesh Electricity Regulatory Commission (State Advisory Committee) Regulations, 2004. (June 21, 2004)
These regulations notified under sub-section (1) of section 181, read with section 87 of the Act lay down the procedure for appointment of members, term of office of the members and, the conduct of the proceedings and functioning of the State Advisory Committee.
Tariff concept papers/notes
1.4The Commission has also issued the following concept papers that provide integral inputs in the tariff determination process of the Commission and outline the tariff philosophy of the Commission.
(i)Concept paper on Retail Supply Tariff (July 31, 2001)
This concept paper issued by the Commission discusses the objectives of tariff setting, tariff principles, methodologies, and key issues involved in determining the retail electricity tariff in Himachal Pradesh.
(ii)Concept note on cost of supply methodology (May 29, 2004)
This concept note attempts to explain the concept of cost of supply, discusses the approaches to determine the cost of supply and the assumptions to allocate costs to each consumer category at different voltage levels.
Consumer Satisfaction Study
1.5The HPERC had commissioned a study with the help of, AC Nielsen ORG-MARG Pvt. Ltd., New Delhi to assess customer satisfaction on the availability, accessibility and affordability of electricity in the six districts in Himachal Pradesh, viz, Shimla, Kullu, Chamba, Solan, Kangra and Mandi. This study also provides feedback with respect to the service being provided by the HPSEB. The purpose of conducting this study was to primarily determine the required inputs necessary for formulating future strategies, to ensure better and consistent quality of power supply to the consumers of Himachal Pradesh.
1.6Primary sample surveys were carried out in all the six districts of the State, during the period June-August, 2003. The Consumer Satisfaction Index (CSI) was estimated for each parameter selected for the study. These CSI’s were then aggregated, based on the perceived weightage of different parameters, to obtain an overall CSI for each district. The study revealed that Shimla district is at the top as far as consumer satisfaction is concerned, while Kangra district is at the bottom. The ranks of different districts and the corresponding CSI, as per the study, are given below:
Table 1.1: CSI and rank of different districts as per calculated CSI
District / Rank according to CSI / Overall CSIShimla / 1st / 0.63
Chamba / 2nd / 0.58
Kullu / 3rd / 0.57
Solan / 4th / 0.55
Mandi / 5th / 0.54
Kangra / 6th and Lowest / 0.50
The study concludes that Mandi district be focused in respect of small and medium Industrial Consumers category followed by Kangra district for domestic rural, domestic urban, commercial and industrial (large) consumer segments.
Electricity Ombudsman and Forum for redressal of grievances of consumers
1.7As mentioned in Para 1.3 above, the Himachal Pradesh Electricity Regulatory Commission (Electricity Ombudsman) Regulations, 2004 and the Himachal Pradesh Electricity Ombudsman (terms and conditions of service of officer and employee) Regulations, 2004 were notified in April 2004 by the HPERC. The Commission has already initiated action by advertising the post of “Electricity Ombudsman”. Clause 6 of the (Electricity Ombudsman) Regulations, 2004 provides that all the expenses of the Electricity Ombudsman’s Secretariat etc. shall be paid out of the fund constituted by the Commission under Section 103 of the Act and till the time the fund is constituted, the expenses of the Ombudsman’s Secretariat shall be borne by the distribution licensee, i.e., by the HPSEB in such manner and proportion as determined by the Commission. The total amount involved on account of salary and allowances, furniture, vehicles etc. as tentatively assessed by the HPERC is to the tune of Rs. 38,11,233/- (one time expenditure of Rs. 14,31,750/- and recurring expenditure of Rs. 23,79,483/- for a period of nine months). The HPSEB has been requested to make provision for the same and, a corresponding provision of Rs. 32,82,459/- on pro rata basis for seven months has been made in the ARR approved for the FY 2004-05.
1.8The Board has also not made any provision for expenses to be incurred by it on the office, salary and allowances of the members and staff of the forum to be established for redressal of the consumer grievances as provided in the HPERC (Guidelines for Establishment of Forum for redressal of grievances of consumers) Regulations notified by the Commission in the Rajpatra, Himachal Pradesh on October 23, 2003. The Commission in the interim order issued on May 31, 2004 directed the Board to submit the same by 15th June, 2004. The Board has, however, declined to include it on the grounds that the matter is subjudice in the Honourable High Court of Himachal Pradesh. The Commission has nevertheless included the expense, as computed by it, in the ARR for the FY 2004-05 just in case the High Court upholds the establishment of the Forum as provided in the Regulations.
State Advisory Committee
1.9The HPERC had constituted a State Advisory Committee (SAC) consisting of sixteen members in February 2001. The first meeting of the SAC was held on 17th August, 2001 and the second at Shimla on 8th October, 2002.
1.10The SAC was reconstituted vide notification dated June 18, 2003 (under powers conferred by Section 87 of the Electricity Act, 2003 (36 of 2003).
1.11The Members of the SAC were selected to represent the interests of electricity industry, commerce, labour, agriculture, academic and research bodies and non-governmental organisations in the energy sector. At present, the SAC has 17 members.
1.12The third meeting of the reconstituted SAC was held on August 22, 2003 and the agenda, interalia, included discussion on the Electricity Act 2003 and various policy issues including matters regarding procedure for giving free power, model power purchase agreements, guidelines for load forecast, resource planning and power procurement, Grid Code, Distribution and Supply Code filed by the HPSEB, draft guidelines for redressal of consumer grievances, discussion paper on tariff policy, consumer interest and standards of performance of the HPSEB.
Appointment of persons to represent interests of consumers before the State Commission
1.13The Commission appointed Shri P N Bhardwaj under Section 94(3) of the Act to represent the interests of the consumers in all the proceedings before the Commission relating the tariff petitions. The consumer representative also made presentations to the Commission during the public hearings.
Regulatory experience in Himachal Pradesh
Tariff order for FY 2001-02
1.14The Board in its first tariff filing (for FY 2001-02) requested the Commission to grant waiver for filing of separate Transmission and Bulk supply Tariff being a vertically integrated utility. The Commission did not agree to this request of the Board and directed it to file separate transmission and Bulk Supply tariff petition or at least file separate data for generation, transmission and distribution businesses. The Board then furnished separate data for the generation, transmission and distribution businesses in the distribution and retail supply tariff application filed on January 29, 2001.
1.15Thereafter, the Commission invited comments and suggestions from the public by issuing public notices on the tariff filing made by the Board. Later, the Commission conducted public hearings at Parwanoo, Nahan, Paonta Sahib, Dharamshala and Shimla. During this process, the Commission issued several directions with the intention to improve the database and the overall performance of the sector. The Commission issued the first tariff order for FY 2001-02 on October 29, 2001 after careful scrutiny and examination of the petition and subsequent information submitted by the Board.
Directivesand compliance
1.16In the first tariff order, the Commission had issued twenty-one tariff-related directions during the course of public hearings as well as in the tariff order. These directions were aimed at making HPSEB a truly efficient, responsive and dynamic organisation and were an integral part of the Tariff Order.
1.17The Commission had outlined a time frame for complying with these directions and stressed the importance of monitoring the progress of compliance of these directions.
Non-compliance with directions
1.18The Board did not comply with most of the directions issued by the Commission within the time frame allowed to it. The Board, however, submitted some information in respect of few directions in the initial progress reports required to be submitted to the Commission. The information submitted by the Board was not only grossly inadequate and incomplete but was halfheartedly prepared and misleading. This was not only the willful contravention of the directions of the Commission but also defiance of the said directions. Accordingly, the Commission on 23rd, 26th, 27th and 30th March 2002; 30th April 2002 and 15th May 2002 issued suo motu notices to show cause why action in terms of Section 45 of the Electricity Regulatory Commissions Act, 1998 (Now repealed) and Regulation 51 of HPERC’s Conduct of Business Regulations be not initiated against the Board for contravening some ten directions issued by the Commission. Consequently, the Commission issued order-cum-directions imposing appropriate penalties on the Board in respect of contravention of six directions while giving benefit of doubt in respect of the other four, under Section 45 of the ERC Act, 1998. The Board filed appeals in the Honourable High Court against the orders of the Commission. The High Court granted stay on the penalties on February 23, 2003.
1.19These orders-cum directions are also available in the public domain on the Commission’s website for access by all in respect of six such cases.
1.20Again the Board failed to comply with seven directions which were due for compliance and, suo motu show cause notices were similarly issued and penalties imposed under section 142 of the Act in respect of six such cases.
1.21The compliance status on all the directions given by the Commission in the first tariff order is discussed in detail in section 2 of this order.
Outsourcing of studies by HPSEB
1.22The Board has submitted that a number of studies, which were required to be conducted as per the directions of the Commission, are being outsourced as given below:
Table 1.2: Studies outsourced by the Board
Name of study / Outsourced agencyUnbundled costs / M/s ASCI, Hyderabad
Transmission and Distribution loss study / M/s ASCI, Hyderabad
Employee costs / M/s ASCI, Hyderabad
Load forecast / M/s ASCI, Hyderabad
Compliance with guidelines issued by the Commission
a) Service Rules & Regulation Policy
b) Distribution Planning
c) Demand Side Management
d) Energy Audit / M/s ASCI, Hyderabad
Fixed assets register / M/s ASCI, Hyderabad
Marginal costs pricing / M/s ASCI, Hyderabad
Voltage wise Costs, Assets and Sales / M/s ASCI, Hyderabad
1.23These studies were awarded by the Board to ASCI in November 2003, i.e. after more than 2 years from the date of issue of the first tariff order. The Board has also submitted that ASCI will require a period of 18 months for submission of these studies from the date of award of the studies. The Commission failed to understand the delay on the part of the Board for taking decision in this regard. It also appeared to the Commission that after outsourcing these studies, the Board was trying to shy away from taking responsibility of providing the necessary information and complying with the directions of the Commission as per the time frame given by the Commission. The studies outsourced in 2003 could have been done much earlier and in time to comply with the directions of the Commission. Also, the Board is relying on the proposed deliverables of ASCI and has not submitted any implementation plan in respect of these studies.