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Objections/Suggestions on ARR/Tariff filings by APTransco

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Objections/Suggestions on ARR/Tariff filings by APTransco & DISCOMS Presentation by K. Raghu, Associate President, APSEB Engineers Association – PowerPoint PPT presentation

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Title: Objections/Suggestions on ARR/Tariff filings by APTransco


1
Objections/Suggestions onARR/Tariff filings by
APTransco DISCOMS
  • Presentation by
  • K. Raghu,
  • Associate President,
  • APSEB Engineers Association

2
This presentation consists of
  • Violations observed in the Merit Order Dispatch
  • Factors which may affect actual revenue gap
  • Need for review of Power Purchase Agreements.
  • Investments by APTransco/ DISCOMS and growing
    interest burden.
  • Gas allocation and avoidable burden.
  • PPA with APGENCO
  • Reform Program
  • Prayer to the Commission

3
Violations Observed in the Merit Order Operations
  • Spectrum PPA- Section 3.10.2 (dealing with the
    Incentives) states that
  • the Board shall pay for actual generation and
    Notional generation above the threshold level of
    a PLF of 68.49 an incentive in the nature of
    increased ROE in accordance with the following

4
Violations Observed in the Merit Order Operations
  • PLF Level of Incentive
  • PLFlt 68.5 None
  • 68.5ltPLFlt 80.5 0.4 increase in ROE for every
  • 1 increase in PLF above 68.5PLF
  • 80.5ltPLFlt85.5 0.5 increase in ROE for every
  • 1 increase in PLF above 68.5PLF
  • gt85.5PLF 0.6 increase in ROE for every
  • 1 increase in PLF above 68.5PLF

5
Violations Observed in the Merit Order Operations
  • It also states that provided , however , that
    to the extent Notional generation contributes to
    achieving a PLF above 85 shall not be
    considered for the purpose of Payment of
    incentives
  • Hence, incentive is part of Fixed cost upto the
    level of 85 PLF and it should be part of
    Variable Cost above 85 PLF.
  • However, APTRANSCO treats the entire incentive as
    a part of Fixed cost.
  • This is a clear violation of Merit Order
    Operations.

6
Violations Observed in the Merit Order Operations
Particulars 2000-01 2001-02 2002-03
Units Purchased 1543 1541 1504(?)
PLF 87.11 87.21 88.03
Incentive Paid _at_0.006 (Rs. Crs.) 13.16 13.24 13.82
If restricted to notional generation (Rs. Crs.) 9.728 9.728 9.728
Additional amount Paid (Rs.Crs.) 3.430 3.512 4.09
Var. Cost (Ps/Unit) above 85 PLF 175 173 163
7
Violations Observed in the Merit Order Operations
  • Thus energy from IPPs has two tariffs for the
    merit order operations
  • upto 85 PLF, where incentive has to be added to
    the Fixed cost
  • above 85 PLF, where incentive has to be added to
    the Variable cost.
  • It appears that the APTransco has not made this
    distinction.
  • The same principle is applicable for the other
    IPP projects.

8
Violations Observed in the Merit Order Operations
  • It is also not clear how Lanco project was paid
    incentive for the operations using Naphtha.
  • APTransco has paid an amount of Rs 0.40 crore to
    the Lanco Kondapally project during 2002-03 as an
    incentive.
  • Why incentive is paid for the operations
    involving alternate fuel?

9
Factors which may affect the actual revenue gap
  • The total revenue gap projected by the APTRANSCO
    and DISCOMS is Rs 2882 Cr.
  • Several factors, such as, change in consumer mix,
    fall in hydro generation are affecting actual
    revenue gap at the end of the Year, than what is
    projected at the beginning of the year.
  • This year also some more factors are likely to
    increase the gap between the revenue and
    expenditure. They are

10
Factors which may affect the actual revenue gap
  • 1. BST projected by APTRANSCO is Rs 2.07, where
    as the average power purchase cost shown by the
    DISCOMS is only Rs 1.961.
  • Additional power purchase expenditure to the
    DISCOMs is 3802.7 X (2.07-1.961) Rs 414.49
    Crore.
  • 2. Wheeling charges APTRANSCO claimed an amount
    of Rs 215 Crore from the proposed wheeling charge
    of Rs 1.00/ unit.

11
Factors which may affect the actual revenue gap
  • This may not be realised, Since APTRANSCO in its
    proposal on wheeling charges has considered the
    component of power purchase cost to be average
    cost of its purchases from all the sources.
  • However, this should be taken as the higher of
    the following two
  • 1. Cost of Power purchase from the MOD.
  • 2. Actual revenue that is realised for the
    additional units supplied to compensate for the
    losses to the Consumers of wheeled energy under
    the existing agreements.

12
Factors which may affect the actual revenue gap
  • Also, the income from wheeling projected by the
    APTransco from the existing wheeling charges ( 13
    paise/ unit) should be deducted from the total
    revenue from wheeling charges, to arrive at
    additional revenue from the revised wheeling
    charges.
  • We would like to know from the Licensee
  • what is the amount of energy consumed by the
    wheeled consumers, above their allocated share?
  • And what is the amount realised from this
    additional energy sold to these consumers at
    present?

13
Factors which may affect the actual revenue gap
  • We feel APTRANSCO may not realise the amount
    projected in the ARR, as the amount collected
    would not be sufficient to meet the additional
    liability due to the burden of loss compensation.
  • 3. No returns APTransco and DISCOMS have not
    claimed any returns for its operations for the
    current and ensuing years.
  • APTransco/DISCOMS have claimed that they would
    forego returns with the intention to keep any
    tariff increases required to bridge the gap to
    minimum and unavoidable levels only.
  • It is not necessary for APTransco to play the
    role of the Govt. and forego legitimate claims on
    revenue requirements.
  • If govt. decides not to place any additional
    burden on the Consumers, it should compensate for
    the gap in the form of additional subsidy.

14
Factors which may affect the actual revenue gap
  • The purpose of Reforms is to run the Licensees on
    commercial lines.
  • This is also against the ESA, 1948 , which
    provides for the min. ROR of 3 on net fixed
    assets.
  • This amount is approximately equal to Rs 200
    crore.
  • 4. Dismantling of Administered Pricing Mechanism
  • Govt. has decided to dismantle the APM for LNG
    and petrolium products.
  • If APM is dismantled for Natural gas , the
    additional burden on APTRANSCO is more than Rs
    550 crore, as all the IPP projects are gas based
    ones.
  • 5. 24 Hour supply to Rural consumers APTransco
    has announced that it will supply electricity to
    rural consumers 24 Hours a day from Aug 2002.

15
Factors which may affect the actual revenue gap
  • This will increase the burden of power purchase
    to APTransco without commensurate returns from
    these consumer categories.
  • The loss due to supply of electricity to the
    subsidized sections is of the order of Rs 100
    Crore.( Assuming the cost to serve to be Rs
    4.50/unit and realisation of Rs 1.50 / unit, and
    total additional supply to rural consumers is
    about 300 MU)
  • 6. Revenue from inter-state sales
  • APTransco has claimed that it may realise Rs 350
    Crore from inter-state sales.
  • This may not be realised, considering the fact
    that already many states are facing the problem
    of surplus energy.

16
Factors which may affect the actual revenue gap
  • We request the Licensee to declare the plans of
    Inter state sales.
  • In this connection, We also request the Licensee
    to study the impact of third party sales out side
    the state as allowed in the MOAs for the some
    short gestation projects, on its future marketing
    plans.
  • The shortfall from inter state sales will be of
    the order Rs 100 Cr.

17
Factors which may affect the actual revenue gap
  • Thus the total short fall in revenue
  • Projected by LicenseesRs 2882 Cr
  • Under estimation of BSTRs 414 Cr.
  • Additional burden due to
  • new wheeling proposal..Rs 250 Cr.
  • RoR..Rs 200 Cr.
  • Dismantling of APM..Rs 550 Cr.
  • 24 Hrs supply to rural consumer..Rs 100 Cr.
  • Short fall from inter state salesRs 100 Cr.

  • ----------------------
  • Total Revenue gap.. Rs Rs
    4496 Cr

  • ----------------------

18
Factors which may affect the actual revenue gap
  • Other factors which are affecting(increasing )
    the expenditure and revenue of The Licensees
    every year
  • Fall in revenue due to
  • Change in consumer mix.Rs 150 Cr
  • Shortfall in Hydel generationRs 150 Cr
  • There are several Other factors( Say impact of
    ABT regime, consumer resistance to tariff hike),
    which may adversely affect the Licensees
    revenues.
  • Thus, the revenue gap for the Licensee for the
    FY 2003 may vary between Rs 4000 Crore to Rs 5000
    Crore.

19
Factors which may affect the actual revenue gap
  • APTRANSCO/ DISCOMS propose to bridge the above
    gap through tariff hike and subsidy from the
    govt.
  • The additional revenue from the tariff hike is
    about Rs 481 Crore. This can only meet 16.6 of
    the total gap projected by the APTRANSCO and if
    all other factors mentioned above are also
    considered, this amounts to only 10.
  • Thus the substantial amount should come from the
    Govt in the form of subsidy.

20
Factors which may affect the actual revenue gap
  • It is very clear from the above that tariff hike
    can not be the solution for the present crises
    faced by the Licensees, and we should identify
    the causes for the present situation and try to
    address them.
  • Blind pursuance of the reform program, without
    understanding the nature and working of the power
    sector and ignoring the social realities will
    only land us in a Orissa like situation.

21
Need for review of PPAs
  • There is a need for review of all Power Purchase
    Agreements with the IPPs for the following
    reasons
  • 1. Violation of GOI norms For ex while the GOI
    guidelines provide for 16 return on equity for
    the entire year, the IPPs are being paid the
    above amount in 12 equal parts on monthly basis .
    This is resulting in additional payment to the
    IPPs.
  • 2. Harmful provisions in the PPA
  • Comptroller and Auditor General in its reports
    on GVK and Spectrum projects has identified
    several provisions which are harmful to the
    consumers, and recommended for the review of
    these PPAs.

22
Need for review of PPAs
  • The Commission has also agreed with some of the
    above issues raised in its order on PPA between
    APTRANSCO and BPL Project.
  • Godbole committee also had identified several
    issues which burden the consumers. For ex Fuel
    arbitrage I.e. difference between the cost of
    fuel actually consumed and as provided in the PPA
    based on calorific value.
  • Inflated Capital costsFor similar capacity of
    projects, there is abnormal difference with
    regard to the capital cost.
  • For Ex BSES 220MWRs 700 Crore.
  • GVK 216MWRs 870
    crore.

  • Spectrum.208MW748 Crore.

23
Need for review of PPAs
  • The BSES project is a new project and GVK and
    Spectrum projects are completed long ago, still
    having higher capital cost. The above figures may
    further go up if revised capital cost proposals
    are approved by the CEA.
  • Even the purchase of energy based on uniform
    fixed cost / unit , as provided in PPAs with
    short gestation projects appear to be on higher
    side.
  • 3. Interest rates offered by the financial
    institutions have drastically reduced. Hence this
    may be taken into consideration to restructure
    the debt portion of the capital cost of IPPs to
    minimise the Forex risk and lessen the debt
    repayment obligation.
  • In view of the above, we request the Commission
    to review all the PPAs with IPPs.

24
Why APTransco is sympathetic to IPPs?
  • 1. Wheeling charges
  • APTRANSCO has requested the Commission to
    approve a wheeling charge of Rs 1.00/ unit.
  • This is based on its expenditure for the year
    2001-02.
  • The actual expenditure for the year 2001-02 is
    more than approved by the Commission, and the
    expenditure for the year 2002-03 has further gone
    up.
  • It is not clear why APTRANSCO has preferred not
    to claim revised wheeling charge based on the
    revised expenditure.
  • Moreover, in the original proposals on wheeling
    charges APTRANSCO has not taken burden of cross
    subsidy into consideration.

25
Why APTransco is sympathetic to IPPs?
  • 2. Fixed charge for GVK and Spectrum projects
  • APTRANSCO has stated that it is adopting the
    existing fixed cost level of Rs 195 crore for GVK
    project and Rs 183 crore for the Spectrum project
    for the ensuing year also.
  • This is in view of the revised proposals
    submitted by the IPPs to the CEA for the fixed
    cost revision.
  • If the revised fixed cost is not approved by the
    CEA, this will result in higher payments to
    theIPPs in the form of interest on these
    additional amounts paid.
  • 3. Incentive payments to the Lanco project
  • APTransco has paid an amount of Rs 0.40 crore as
    incentive to the Lanco for the units produced
    with fuel Naphtha.
  • What is the need to pay incentives when energy is
    produced with alternate fuel?

26
Investments and Growing interest Burden
  • Interest payments approved by
    APERC for the year 2001-02 Rs 470 crore.
  • Revised estimate of interest
    payments for the year
    2001-02 Rs 495 Crore.
  • Interest payment projected for
  • the year 2002-03Rs 730 Crore.
  • From the above it is clear that the burden of
    interest is growing year after year on APTRANSCO.

27
Investments and Growing interest Burden
  • We feel this burden is due to the investments
    made by the APTRANSCO which are not prudent.
  • For Ex For the year 2002-03 APTRANSCO has
    proposed the following investments
  • On BPL Transmission Scheme..Rs 50 crore.
  • On Krishnapatnam Transmission scheme ..Rs 40
    crore.
  • On SGP-I Rs 50 crore
  • On SGP-IIRs 20 crore.

28
Investments and Growing interest Burden
  • Among the above projects,
  • PPA with BPL has not been consented to by the
    Commission.
  • PPAs with Krishnapatnam and other SGP projects
    have not been approved by the Commission yet.
  • In light of the revised load forecasts, the need
    for above schemes is to be examined.
  • Also, in its strategy paper on Power, Govt. of AP
    claimed that Rs 890 Crore is requiered to reduce
    1 technical loss.

29
Investments and Growing interest Burden
  • The reduction in power purchase
  • cost due to the above is ..Rs.80 crore.
  • However, the interest burden on the investments
  • is(_at_16 rate of interest...Rs 134 crore.
  • If investments are made in the name of system
    improvements, future capacity requirements
    etc,...without regard to returns from these
    investmentsthe entire system may collapse unable
    to recover the costs.

30
Investments and Growing interest Burden
  • Even in Orissa huge investments are made on
    Transmission and Distribution network, but failed
    to recover the costs leading to collapse of the
    entire system.
  • In view of the above, we request the Commission
    to review the entire investment of APTRANSCO and
    Discoms.

31
Gas allocation-avoidable burden
  • The discrimination shown in allocation of gas had
    adversely affected the finances of the Licensee
    and resulted in additional burden on the
    consumers.
  • Non-existing projects like GVK (extension),
    Konaseema, Vemagiri and Goutami have been
    recommended by the Govt. AP for allocation of gas
    and have subsequently been awarded firm
    allocation by the GOI.
  • On the other hand, existing plants like APGPCL,
    Lanco Kondapally do not have firm allocation to
    their full capacity, forcing them to depend on
    alternate fuel like Naphtha, resulting in higher
    variable cost.
  • The additional burden due to non-availability of
    gas to Lanco project is Rs 234 Crore from Lanco
    project alone.

32
Gas allocation-avoidable burden
  • Hence huge savings can be achieved if gas is
    allocated to the existing projects.
  • In light of the above, we request the Commission
    to direct the Govt of AP to recommend GOI to
    re-allocate gas to existing plants from
    non-existing plants which have already obtained
    gas allocation on firm basis.
  • In the event of firm allocation of gas to these
    existing projects based on Govt. recommendations,
    the PPAs may be revised to see that no incentives
    are paid for extra PLFs that are achieved with
    the availability of additional gas.

33
PPA with APGENCO
  • At present APGENCO is not allowed to get ROE,
    incentives and recover depreciation from the sale
    of energy to APTRANSCO.
  • It is stated that the above practice may be
    continued for the next year, except that the
    depreciation may be allowed to the extent of debt
    redemption obligations.
  • This is not in the interest of the APGENCO which
    is the best performing utility in the country.
  • For IPPs whose cost of supply of energy is much
    higher than the APGENCO are allowed to get all
    the above benefits.

34
PPA with APGENCO
  • Lanco project got an incentive for producing
    energy at Rs 5.93 / unit making mockery of the
    very word incentive.
  • On the other hand , APGENCO units which are
    achieving national awards for their performance
    are facing the threat of Closure/ backing down.
  • Hence, we request the Commission to put an end to
    this discriminatory treatment and allow the
    APGENCO to function on commercial lines.
  • A portion of variable cost from APGENCO units may
    be treated as Incentive to be included in the
    Fixed cost to protect the highly efficient
    APGENCO units from the threat of closure/ backing
    down.

35
Allow Returns to APTRANSCO and DISCOMS
  • APTransco and DISCOMS have not claimed any
    returns for their operations for the current
    and ensuing years.
  • APTransco/DISCOMS have claimed that they would
    forego returns with the intention to keep any
    tariff increases required to bridge the gap to
    minimum and unavoidable levels only.
  • It is not necessary for APTransco to play the
    role of the Govt. and forego legitimate claims on
    revenue requirements.
  • If govt. decides not to place any additional
    burden on the Consumers, it should compensate for
    the gap in the form of additional subsidy.

36
Allow Returns to APTRANSCO and DISCOMS
  • The purpose of Reforms is to run the Licensees on
    commercial lines.
  • This is also against the ESA, 1948 , which
    provides for the min. ROR of 3 on net fixed
    assets.
  • Even the performance of APTRANSCO and DISCOMS on
    revenue front is exceptional, taking the total
    revenue collections from about Rs 4800 crore to
    Rs 6226 crore in two years.
  • However the financial crises faced by the
    Licensees is due to the factors which are beyond
    its control and lie with the Reform program
    initiated by the Govt. of AP.
  • Hence, Licensees should be allowed to get Returns.

37
Some important Issues
  • Government subsidy
  • The Commission in its Tariff Order for 2001-02
    directed the Govt of AP, to provide subsidy to
    the DISCOMS directly in view of the proposed
    Privatisation of distribution to avoid cash flow
    problems to the future private companies.
  • However, in view of the experience of Orissa,
    where the private Distribution companies
    defaulting payment to the Gridco, it is interest
    of the Consumers to route the Govt subsidy
    through the APTRANSCO.

38
Some important Issues
  • 2. Variable cost of RTS of APGENCO and NPTCs
    Ramagundam station
  • It is not clear how the variable cost of NTPCs
    Ramagundam station is Rs 1.49/ unit where as the
    variable cost of RTS of APGENCO is only Rs 1.02/
    unit, since both the stations are located in the
    same region.
  • Moreover, NTPCs station is large in capacity
    which should have resulted in lowering of
    variable cost.

39
Some important Issues
  • 3. The Commission has imposed ban on third party
    sales to protect the interests of the consumers.
  • The purpose of the above ban is to prevent the
    subsidizing sections from leaving the APTRANSCOs
    fold.
  • It is strange that APTRANSCO has projected cost
    of supply from LVS power at Rs 9.74/ Unit for the
    current year, and it proposes to pay an amount of
    Rs 35 Crore towards fixed charges without
    purchasing a single unit from the MPP.
  • Thus the purpose of imposing the ban got
    defeated, and is only helping the private
    parties.
  • We request the Commission to see that the
    decision to ban third party sales will not harm
    the interests of the Licensee and the consumers.

40
Some important Issues
  • MOAs with Financial Institutions
  • The contents of the MOAs signed by the Govt of AP
    and APTRANSCO with the financial institutions in
    favour of Gas based projects are not made public.
  • It is not clear whether the APTRANSCO has taken
    approval from the Commission to sign the above
    MOAs.
  • It was admitted by the CMD/APTRANSCO in one of
    the public hearings conducted by the Commission
    that the MOAs allowed for the third party sales
    outside state, and he also stated that the above
    matter is not within the jurisdiction of the
    APERC as the sales are outside the state.

41
Some important Issues
  • Now, APTRANSCO proposes to sell the surplus power
    outside the state, and obviously the above third
    party sales allowed in the MOAs will affect the
    marketing plans of APTRANSCO to other States.
  • Thus, any matter which affect the finances of
    APTRANSCO and the Discoms should come under the
    purview of the Commission.
  • Hence, we request the Commission to review the
    MOAs signed by the Govt. of AP and APTRANSCO with
    the Financial Institutions.
  • We also request the Commission to direct the
    Licensee to make the above MOAs available to the
    Petitioner.

42
Reform Program
  • SINGLE BUYER MODEL

CGS
C O N S U M E R S
IPPs
(APSEB single buyer)
captive
others
43
Reform Program
  • MULTI BUYER MODEL

CGS
DISCOM1
W H O L E S A L E C O M P E T I T I O N
C O N S U M E R S
IPPs
DISCOM2
DISCOM 3
AP GENCO
DISCOM 4
others
APTRANSCO RESTRICTED TO WHEELING ONLY
44
Orissa Experience with the Model
  • The proposed World Bank Model failed to achieve
    its goals and miserably failed in Orissa.
  • Discoms have defaulted in payments to Gridco.
  • No fresh investments have come.
  • Failed to check Commercial losses leave alone
    technical losses.
  • Consumer service deteriorated.
  • Rural consumers are the worst sufferers of the
    privatisation program.

45
Orissa Experience with the Model
  • Competition remained a myth.
  • Distribution companies tried to hide their
    profits and actual reduction of losses.
  • Benefits of efficiency improvements have not
    percolated to the consumers.
  • Private Discoms inflated their costs. For ex
  • cost of Earth rod which was about Rs 400/- prior
    to reforms was inflated to Rs 40000/- after
    reforms.(MPSEB Engineers Association Report).

46
Orissa Experience with the Model
  • In the absence of real competition and effective
    check from civil society institutions and
    consumers, private companies exploited the
    consumers.

47
Whither Andhra Pradesh Power Sector?
  • GoAP in its strategy paper on Power, has stated
    that it will privatise atleast one distribution
    company during 2002-03.
  • If the Govt. goes ahead with the privatisation
    policy, the power sector of AP will get into much
    bigger crises.
  • In view of the above, we request the Commission
    to recommend to the Govt. of AP to review the
    entire reform process, and make amends wherever
    necessary.

48
Prayer to the Commission
  • We request the Commission to
  • To review the Merit Order Operations.
  • To consider all the factors which will increase
    the revenue gap, and direct the Govt. to
    compensate APTRANSCO/DISCOMS with suitable
    subsidy.
  • To review all the existing PPAs with the IPPs.
  • To review the investments that are being made as
    part of the Reform Program.
  • To review the MOAs signed by the Govt. of AP and
    APTRANSCO with the Financial Institutions.
  • Not to discriminate APGENCO and allow returns to
    APTRANSCO and DISCOMS.
  • To recommend to the Govt. of AP to review the
    entire reform program and make suitable amends
    wherever necessary.

49
Thank you
APSEB Engineers Association
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