A.  General views, Basic Objections & Comments on the process and procedure adopted for tariff setting

 1.  The Hon’ble Commission is already aware that while the industries contribute highest revenue to the electrical industry in the State and are the major source of cross subsidization of other sectors, they have been infact getting a raw deal from UPPCL.

      Hon’ble Commission have already observed in the past as under:-

   “ Industrial consumers who have otherwise been more unfailing in paying their dues and subsidizing other categories of consumers are leaving the system either by switching to captive generation or by shifting / closing the business.

   This Hon’ble Commission, since it came in to existence in 1998 have been able to regulate the tariffs and other conditions of electrical supply which gave some relief to the industry. We are also aware of the concern  of  Hon’ble Commission  for healthy growth of industry through tariff formulations.

   We are therefore looking towards the Hon’ble Commission this time with the hope that the unreasonable demand of UPPCL for hike in the tariff for industrial sector will not be accommodated. Rather, UPPCL may be encouraged to reduce their inefficiencies and improve  productivity through setting  the highest performance standards for this year which other States have already achieved in the Country and subsequently match these with international standards in times to come. Industry is forced to run a race with international giants today, hence can not afford to loose time . UPPCL is therefore required to keep pace with the industry requirements and have to work on war footing. The improvements as shown in this ARR and Tariff proposal are extremely slow . Industry is bound to die at this pace of proposed  improvement.

2.       Existing tariffs for industry segment in U.P are already high compared to most of the

States in the Country. Due to non availability of regular electrical supply , poor quality of whatever supply is available, compulsion of payment of minimum consumption charges the effective tariff is actually three to five times higher than the declared tariff. Industry in U.P is already witnessing a negative growth. Any further increase in the tariff will certainly force the industry either to switch over to captive generation and those who can not afford to do so, will shift/close their business.

3.      Section 29 of the Electricity Reforms Act clearly stipulate that the tariff will be decided by this Hon’ble Commission, who shall be guided by the main principle that the consumer is required to pay for the use of electricity in a reasonable manner based on the average cost of supply of energy and that the tariff should encourage efficiency, economical use, good performance, and optimum investments etc. This section also contains that if the State Government requires the grant of any subsidy to any consumer or class of consumer in the tariff determined by the State Commission under this section, the State Government shall pay the amount to compensate the person affected by the grant of subsidy in the manner the State Commission may direct. Industry is being forced to cross subsidise power supplied to other sectors of economy much against the principle of free trade economy under the new WTO regime. Imposing additional burden will certainly push industrial consumers to opt out in favor of captive power generation, thereby shrinking the cushion of cross subsidy now available to the Licensee. Keeping in view this the proposed hike in tariff by UPPCL for industrial segment is not justified and also not in the public interest.

4.      That section 10 of U.P Electricity Reforms Bill 1999 has given vide functions of the Hon’ble Commission which interalia includes:-     

i)               To regulate the working of licensees and other persons authorized or permitted to engage in the electricity industry in the state  and to promote their working in an efficient, economical and equitable manner.

ii)              To require licensees to formulate perspective plans and schemes in coordination with others for the promotion of generations, transmission, distribution and supply and utilization of electricity, quality of services and to device proper power purchase and procurement process.

iii)            To set standards for the electricity industry in the state including standards relating to quality, continuity and reliability of service.

We therefore submit to the Hon’ble Commission that there is a need to have 5 years perspective plans to be prepared be UPPCL after deliberations with consumer groups, experts and then laying down standard form for ARR within the framework of the perspective plan. 

5.      The A.R.R. has become a tool of blanket legal sanction to enhance tariff by UPPCL. UPPCL is  making short term commitments on T & D loss, recovery efficiency, better metering etc. and then coming out with explanation as to why certain commitment could not be achieved without fixing any accountability for failures. Consumers are therefore not in a position to bear the cost of inefficiencies of UPPCL.  

B.  Objections and Comments on Specific Assumptions on Vital issues incorporated in ARR

1.      Page 9 of ARR- No details of financial burden of about Rs.500/- crores due to GOI order on allocation of 353.3 MW out of UP Share of 3399.9 MW, have been given.

2.      That the phenomenon of “Stranded Cost” due to shifting of industrial loads to self generation and change of mix so as to decrease the average realization compared to that approved by the Hon’ble Commission in FY-02 tariff order, is visible for many years now and is posing big threat to the viability of the distribution licensee. But UPPCL has not investigated and explained the reasons for such change. However, the following are the well known reasons:-

q       Ever increasing and complicated tariff.

q       Availability of cheaper alternatives.

q       Indifferent attitude of UPPCL officials.

q       Irregular supply and frequent breakdowns.

q       Lengthy dispute settlement process.

Without going into more details  to prove these well known facts, we would earnestly urge the Hon’ble Commission to direct UPPCL to come out with more detailed note on this aspect  of changing mix to its disadvantage.

3.       Page-12 of ARR- (Para 1.3.1.5):- It is submitted that Securitisation of liabilities and conversion of the same into equity of the State Govt. and in view of assumption of the liability by State Govt., it would prove to be  more costly to UPPCL if “return on this portion of equity ”is allowed in next three to five years. There may be moratorium on return on this part of equity for next 5 years.

4.       Page 13 (Para 1.4) & Page 31 (Para 3)- T& D losses:-   That entire concept of T&D loss in UPPCL, is a misnomer. According to the study carried out by PWC three years back, indicated T&D loss of about 42% which in fact is 56% as would be explained subsequently, which in any case should not be called T&D loss, because the entire loss is not the result of system alone but in reality it is due to the unaccounted  consumption also.  Calling entire theft as T&D loss is nothing but camouflage and abetment of theft.  Hon’ble Commission may therefore direct UPPCL to identify the real technical loss and  the theft in each division .

5.       Page 23 (Para 1.6)- Collection Efficiency:- That in  para 13 above, it has been pointed out that real line loss (taking figure of 42% as worked out by PWC as the basis), is 56%. This is explained as under:-

      Technically there should be 100% realization of billing and lower collection should get compensated by the recovery of arrears . But taking actual collection efficiency as 78% in FY 2002, and not taking any credit for recovery of arrears means another loss of 22% of assessment. This is nothing but conversion of theft into false billing. During the year ending 2002 the amount of short recovery was Rs 1419 crores. During the FY-02, T&D loss shown were 38.78% and sale of 24459.44MV giving assessed revenue of Rs 6449 crore at an average rate of Rs2.64 paise per unit. This in other words  means a loss of Rs 105 crores for each “one percent T&D loss ” of 39293 units available for sale. The less collection of Rs 1419 crores if converted into T&D loss means Rs 1419 / 105 = 13.51% of 39293 MU. In fact when T&D loss was assessed at 42% , 13.51 % T&D losses were involved due collection in-efficiency. Thus putting the actual loss  at 42+13.51=55.51 say 56%. 

6.      That if UPPCL is of the opinion that recovery of last arrears has to meet accumulated liabilities, we would place it before the Hon'ble Commission that outstanding arears are in fact going up and that is why power purchase liability has been taken up by G.O.U.P. and converted into equity. The Hon’ble Commission has not fixed any loan of recovery of Arrears . In case it feels that large part of it is not recoverable ,UPPCL may be directed to write it off. There may be some other liability and therefore UPPCL should fix a target of atleast 20% recovery of arrears at the end of previous year (which will again go up by short recovery during the current year in question). Half of it could go to clear past liability and another half should be added to meet current years cash generation. But unfortunately ARR has completely ignored its plan for the recovery of arrears. We understand that such arrears at the end of FY-02 were Rs 6000 crores and 20% recovery would mean Rs/-600 crores to meet past recovery and Rs/-600 to accrue during the year 2002-03.Taking the proposed collection efficiency at 85.9%, the arrear would go up by another Rs/-1500 crores less Rs/-1200 crores.

7.      Normal collection efficiency of the any current year’s should not be less than 95% and there should be target of 20% recovery from arrears. There are states like Andhra Pradesh where recovery is more than 100%.

8.      Page 14 – subsidy from GOUP- that letter of comfort/confirmation of payments of subsidy and govt. bills may be obtained regularly  every month.

9.      Page 21 (para 1.4.4.3):- That UPPCL has talked about “its commitment to aggressive efficiency improvement” but actual commitments in the ARR does not seems to be aggressive e.g 2% reduction in T & D losses and 7% improvement in collection efficiency are in no way the aggressive steps. If we call these as the aggressive steps, then at this pace, the industry in U.P is bound to die. Hon’ble Commission had fixed T & D loss at 29.5% for the year 2002-2003 in its first order for the year 2000-2001. Hon’ble Commission may direct UPPCL to strictly adhered to the performance standards set by the Commission.

10.    Page 23,24,25- cash coverage and ARR summary:- That we have recasted the ARR summary on the following assumption.

q                          line loss – 29.5%.

q                          recovery efficiency 85.9%.

q                          recovery of Arrears – Rs 1200 crores.

q                          subsidy as worked out in ARR.

Shortfall with the above parameters will workout to be 14.56% or say 15% of existing level per unit.

11.    Page 32 Para 3.2.1/load factor for domestic consumers:- –That we agree that load factor assumed by UPERC for domestic consumers as 11% is on the lower side in UP in any case is better than Orissa. But what is surprising is that UPPCL had to fall back on the study carried out in Orissa, to prove its point. Why such a study cannot be carried out by UPPCL, not only for domestic consumers but for all categories of consumers, which in any case is necessary for LMV-6 & HV-2 consumers to justify minimum charges and unless such a study has been discussed and approved by the Hon’ble Commission, imposition of minimum consumption guarantee (MCG) should not be allowed.  It is strange that UPPCL has no data to prove consumers load factor and has to depend on  survey done in Orissa. In fact any exercise of tariff formulation without load factor survey of all category is futile.