B.PAC says there is no case for BESCOM to increase power tariff

B.PAC submitted its strong objections to BESCOM’s proposal for increase of electricity tariff for FY-17. TV Mohandas Pai, Vice President and Revathy Ashok, CEO and Managing Trustee, B.PAC made the submissions to the Karnataka Electricity Regulatory Commission (KERC) during the public hearing conducted by KERC on Friday February 26th 2016.

Following are the highlights of B.PAC’s submissions. 

Capital Expenditure

CAPEX for FY15 has nearly doubled – The sanctioned budget was Rs 763 crore, whereas actual CAPEX has increased to Rs 1474 crore in 2014-15. This amounts to an increase of Rs 711 crore. Such a significant increase in unplanned CAPEX has a very adverse impact on both cash flow, as well as higher interest cost.

The increase in CAPEX is merely because of poor planning and improper forecasting of replacement and preventive maintenance CAPEX. BESCOM needs to bring in proficiency in working out realistic budgets and timely execution of works within budget periods. For any variations from the approved projections, prior approval of the commission to be sought. We submit that, there is no case of truing the CAPEX cost. 

Cross-subsidy level

The Electricity Act 2013 recommends that cross-subsidies shall be progressively reduced and eliminated and the National Tariff Policy recommends that the tariff should be minimum 50% of the cost of electricity and cross-subsidy variation should be brought down gradually and to the extent of not more than (+/-) 20% of the cost by FY 2011.

B.PAC urged the Commission to direct BESCOM to add a separate line item in the bill showing cross-subsidy in the tariff, so consumers are made aware of this fact in a transparent manner.

Power Purchase

As per the claim of BESCOM, power purchase cost has increased by 7 paise above the approved cost. BESCOM has requested to true up actual power purchase cost of Rs 11,689.55 crore.

Actual purchase cost is Rs 11, 689 crore vs KERC approved cost of Rs 11, 922.09 crore. The actual cost incurred has been lower by Rs 233 crore. However, the unit cost of energy has gone up to Rs 3.97/KWh against approved Rs 3.90/KWh. The short term power has the highest cost of power/KWh.

Of the total 30,566 Mu of power approved, only 6.36 % was to be procured from short term power because this is expensive and every attempt should have been made to minimise purchase of power from short term sources. However, regretfully the total share of short term most expensive power increased from 6.36% to 11.48% – an increase of 1,523 Mu, nearly 80%. This is the single largest reason for increase in weighted average purchase cost per unit of power.

Even though the actual per unit cost of purchase of short term power was lower than the approved per unit cost, since the quantum of purchase of short term power increased so significantly, it has had an adverse effect on the average purchase cost per unit.

We submitted the truing up of purchase cost of Rs 11,689.55 crore not be permitted, since the average cost per unit cost has increased because of poor planning by BESCOM.

Also the Profit before tax has increased from Rs 81 crore in 2013- 14 to Rs 139 crore in 2014-15. Truing up of Purchase Cost is therefore not required.

Trade Receivables

Trade receivables of Rs 6,672 crore – close to six months of sales, reflecting very poor collection efficiency by BESCOM. Further, Rs 702 crore are receivable from GoK for free power supply to IP sets supply and tariff subsidy from GoK on BJ/KJ installation. All of these delays in collection result in higher borrowings and higher interest cost.

All efforts must be made by BESCOM to reduce interest cost by –

(a) Having strict control over CAPEX to remain within budget and

(b) To increase collection efficiency.

There is no case for truing up interest cost to a higher number on normative basis.

Agricultural consumption

The 23% unmetered connections for agricultural usage (IP Pump sets) lead to anomalous figures of consumption and possible misuse/inefficient use of power in the sector. Also, the tariff fixed is only 30% of the cost of electricity which is reimbursed by the government, the rest 70% is borne by the consumers through cross-subsidy.

Para 5.4.8 and 5.4.9 of the National Electricity Policy makes the metering mandatory for all consumers.  BPAC too recommends that metering to all sectors to be made mandatory.

B.PAC urged that instead of passing on the burden to other consumers, the State government should budget it and the cash subsidies to be extended directly to the farmers.

It is also observed that the computation of ARR has wrong figures, increased cost for fiscal 2017 and short revenues.

After making submissions, TV Mohandas Pai, Vice President B.PAC said, “Provisional P&L for 2015 shows a healthy profit figure and there is no case for increase in power tariff. The Commission should not pass the burden through increasing power tariff due to BESCOM’S inefficiency.”

“We made our submissions emphasising the inefficiency of BESCOM in planning their operations leading to power purchase at higher cost and several other issues. The Commission was urged not to allow increase in tariff charges,” said Revathy Ashok, CEO, B.PAC.

The following presentation was submitted to the Commission. 

 

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<a href=”https://assets.documentcloud.org/documents/2729487/BPAC-s-Objections-to-BESCOM-s-Proposed-Tariff.pdf”>BPAC s Objections to BESCOM s Proposed Tariff Hike for 2016 2017 (PDF)</a>
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<a href=”https://assets.documentcloud.org/documents/2729487/BPAC-s-Objections-to-BESCOM-s-Proposed-Tariff.txt”>BPAC s Objections to BESCOM s Proposed Tariff Hike for 2016 2017 (Text)</a>

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