Maharashtra State Electricity Distribution Co. Ltd.

Prakashgad, Plot No.G-9, Anant Kanekar Marg, Bandra (East), Mumbai – 400 051
É (O) 26474211 / 26472131, Fax- 26475012,Website : www.mahadiscom.in

Public Notice

Inviting comments / suggestions / objections on the ARR and Tariff Determination proposal of MSEDCL for the year 2006-07

1. As per the provision of Section 62 and 64 of the Electricity Act, 2003, MSEDCL is required to publish a public notice in various newspapers, both English and Marathi, giving the summary of the ARR petition dated 28 th February, 2006 and Tariff Proposal dated 26 th May, 2006. Considering the changes subsequent to filing of ARR & Tariff Petition and also the discussion during the preliminary validation on 7 th April 2006 & final Technical Validation on 22 nd June 2006, these data have been merged and updated as on 20 th July 2006. The summary of the same is as under.
2. Objective and approach for ARR and Tariff proposal filing for FY 07

The Maharashtra State Electricity Distribution Company Limited (MSEDCL or Maha Vitran) is submitting this Annual Revenue Requirement (ARR) & Tariff Petition for FY 2006-07 to the Maharashtra Electricity Regulatory Commission (MERC), on the basis of the provisional Transfer Scheme, in accordance with Section 61 and 62 of the EA 2003 and as per the MERC (Terms and Conditions of Tariff) Regulations, 2005, based on the actual expenditure and revenue of FY 2004-05, actual expenditure till September 2005 and estimates from October onwards for FY 2005-06, and projections for FY 2006-07.

The key features of the proposal are:

• MSEDCL has projected the category-wise sales for the metered categories on the basis of the past trends in sales, using 5-year or 3-year Compounded Annual Growth Rate (CAGR) as appropriate, and after considering the assessed impact of the severe load shedding being undertaken by MSEDCL in the State.
• MSEDCL has projected total power purchase of 78453 MU, from sources such as MSPGCL, CGS Stations, Ratnagiri Gas & Power Private Limited (RGPPL), traders, & renewable sources, at a total estimated cost of Rs. 17,359 crore.
• The employee expenses have been projected after considering the impact of the wage revision, normal increase in DA expenses, and a nominal increase of 4% in basic salary and other allowances.
• A&G expenses have been projected to increase at a nominal rate of 5%
• R&M expenses have been projected at 3.5% of the opening GFA
• Depreciation has been projected on the basis of the MERC Tariff Orders.
• Interest on long-term loans has been projected on the outstanding loans allocated to MSEDCL as per the provisional Transfer Scheme, after considering the additional loans, and repayment schedule. The average interest has been reduced from around 13.4% in FY 2001-02, to around 11% in FY 2004-05, and is expected to reduce further to around 8.3% in FY 2005-06 and FY 2006-07.
• The capital expenditure projected in FY 2005-06 and FY 2006-07 is Rs. 1142.7 crore and Rs. 2829.7 crore, respectively. The capital expenditure has been assumed to be undertaken at a normative debt:equity ratio of 70:30.
• The income tax liability of MSEDCL in FY 2006-07 has been projected by applying the current effective income tax rate of 33.66% (30% tax, 10% surcharge, and 2% cess thereon) on the projected RoE.

• For the purposes of this ARR Petition, MSEDCL has assumed that the entire ARR of the MSETCL, which is the notified STU, would be recovered through MSEDCL’s ARR.
• For FY 2004-05 & FY 2005-06, MSEDCL has projected return on the basis of 4.5% of its Net Fixed Assets. For FY 2006-07, MSEDCL has projected proportionate return on equity (RoE) at the rate of 16% on the opening equity at the beginning of the year.
  
  3 Summary of the Annual Revenue Requirement (ARR) & Revenue Gap with existing tariff, for FY 05 (actual), FY 06 (provisional) and FY 07(proposed), is given below:  

  Note: For FY 2004-05, audited information is available and would be annexed to t

4 Distribution Loss – The energy input, sales and distribution loss for FY 05 (actual), FY 06 (estimated) and FY 07 (projected) is given in the Table below. MSEDCL has projected a 2% reduction in distribution loss in FY 2006-07, based on past experience and in view of the capital investments being proposed, which will bear fruit in the long run. ]

5. Regulatory Liability Charges

The Commission, in its Tariff Order for FY 2003-04, had introduced Regulatory Liability Charges at the rate of 50 paise per unit for the subsidizing categories, viz. LT commercial, LTPG, HTP I, HTP II and Railways, for funding the cost of excess T&D losses. This was to be returned to these consumer categories in future through reduction in tariffs, when the T&D losses are reduced.

MSEDCL accepts that the revenue earned from RLC has to be refunded to the consumers, at some point of time in the future. However, MSEDCL has faced a revenue gap in FY 2004-05 and FY 2005-06, despite earning revenue from RLC. If the revenue from RLC is refunded, the revenue gap will increase correspondingly, which will have to be recovered from all consumers. Further, though distribution losses have been reduced in FY 2005-06 as compared to the loss levels in FY 2004-05, revenue from RLC can be returned only out of savings due to higher loss reduction as compared to target loss reduction. Since, the loss levels are still above the target loss levels stipulated by the Commission, it is not possible to refund the revenue earned from RLC at this stage.

6 Load shedding Vs Power Purchase Cost – The load shedding in MW and MU, total power purchase cost in Rs. Crore and average power purchase cost in Rs/kWh for FY 05 (actual), FY 06 (actual) and FY 07 (proposed) is given in the following Table. The increase in the demand - supply gap is the primary reason for the increase in load shedding, which has necessitated higher incidence of costly power purchase.

7 Willingness to pay

Increase in power purchase quantum enables MSEDCL to mitigate load shedding to some extent. However, the tariff will also increase correspondingly, as the cost of power purchase has to be recovered from the consumers. Consumers may or may not be willing to bear the additional burden through payment of higher tariffs to offset the load shedding requirement, and need to communicate their willingness to bear the burden of increased tariffs to eliminate/minimise load shedding.

Recently, an innovative approach to the above problem has been successfully implemented in Pune urban circles, where the industrial units having captive facilities are utilising the surplus captive power available during peak hours. This results in reduction of consumption from the grid by these industrial units during these hours. Thus the surplus grid power is utilized to eliminate load shedding in the local area. The difference in the tariff payable by the industrial units having captive facilities and the actual cost of captive generation is compensated to the captive units; the amount is collected by payment of additional ‘Reliability Charges’ of around 42 paise/kWh by all consumers in Pune urban circles for their consumption (except domestic consumers consuming less than 300 units per month).

8 Tariff proposal – A comparison of the existing and proposed tariffs along with the percentage increase proposed for each consumer category, is given in the Tables 1 and 2. As detailed above, power purchase expenses forms the bulk of the ARR of MSEDCL, and contributes around 76% of the ARR. The high power purchase expenses are mainly on account of increased quantum of power purchase from RGPPL and increased cost of Generation of MSPGCL and other sources, which has primarily necessitated the tariff increase.

9 The MERC has directed the MSEDCL to make available the Executive Summary of the proposal both in English and Marathi and / or detailed petition documents containing data in CD to anyone interested.

10 Copies of the following documents can be obtained on written request from the Offices of MSEDCL mentioned below:

1. Executive Summary of the proposals (free of cost, either in Marathi or in English),
2. Detailed Petition documents along with CD (in English) (on payment of Rs 300/- by Cash or DD/ Cheque drawn in favour of Maharashtra State Electricity Distribution Company Limited).
3. Detailed Petition documents – print version only (in English) (on payment of Rs. 250/-).
4. CD of detailed Petition document (in English) (on payment of Rs. 50/-).

Head Office: Superintending Engineer (TRC)

Maharashtra State Electricity Distribution Co. Ltd.
5 th Floor, Prakashgad, Anant Kanekar Marg,
Bandra (E), Mumbai – 400 051. Maharashtra.
Telephone No. 022 26472131(O)/26476843 Fax No.022 26475012
e-mail : setrc@mahadiscom.in
Website : www.mahadiscom.in
Other Offices:

10. The Commission has directed MSEDCL to invite comments or suggestions from the public on the above Petition through this Notice. Suggestions or comments /objections may be sent to the Secretary, Maharashtra Electricity Regulatory Commission (MERC), 13 th Floor, Centre No. 1, World Trade Centre,
Cuffe Parade, Mumbai – 400 005 [Fax :022-22163976,
E-mail - mercindia@mercindia.org.in] by 14 th August 2006, along with proof of service on the Superintending Engineer, Tariff Regulatory Cell, Maharashtra State Electricity Distribution Co. Ltd., Bandra Kurla Complex, Bandra (E), Mumbai-400051.

11. Every person who intends to file objection, suggestions or comments can submit the same in English or in Marathi, in six copies, within three weeks of the Public Notice, but not latter than 21st August 2006. The Objection, suggestion should carry the full name, postal address and e-mail address, if any, of the sender. It should be indicated whether the objection is being filed on behalf of any organization or category of consumers. It should also be mentioned if the sender wants to be heard in person, in which case opportunity would be given by the Commission at the Public Hearing to be held at the following places, for which no separate notice will be given.

12. Interested parties, who find it difficult to attend the hearing at the respective Divisional Headquarters, may participate in the hearing at Mumbai.

13. MSEDCL shall reply to each of the objections / suggestions / comments received within the prescribed time, within three days of the receipt of the same. The objector can submit a rejoinder to MSEDCL’s reply within one week of the receipt of MSEDCL’s reply, but not later than 25 th August 2006 . In both cases, six copies should be endorsed to the Commission.

Table 1

Comparison of existing and proposed tariff for Low Tension (LT) categories of consumers

Table 2