Appellate Tribunal For Electricity
Dakshin Haryana Bijli Vitran Nigam ... vs 1. Haryana Electricity Regulatory ... on 3 July, 2013
Appeal No121 of 2012
Appellate Tribunal for Electricity
(Appellate Jurisdiction)
APPEAL No.121 of 2012
Dated: 03rd July, 2013
Present: HON'BLE MR. JUSTICE M KARPAGA VINAYAGAM, CHAIRPERSON
HON'BLE MR. V J TALWAR, TECHNICAL MEMBER
In the Matter of:
Dakshin Haryana Bijli Vitran Nigam Limited (DHBVNL),
Block C, First Floor, Vidyut Sadan,
Vidyut Nagar,
Hissar, Haryana
...Appellant
Versus
1. Haryana Electricity Regulatory Commission
Bays 33-36, Sector-4,
Panchkula-134 112
Haryana
2. Uttar Haryana Bijli Vitran Nigam (UHBVNL)
Vidyut Sadan, Plot No.C-16,
Sector-6, Panchkula,
Haryana
...... Respondent
Counsel for the Appellant(s) : Mr. Amit Kapur,
Mr. Vishal Anand
Mr. C K Rai
Mr. Ravin Dubey
Ms. Awantika Manohar
Counsel for the Respondent(s): Ms. Sikha Ohri (for R-1)
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Appeal No121 of 2012
J U D G M E NT
PER HON'BLE MR. JUSTICE M. KARPAGA VINAYAGAM,
CHAIRPERSON
1. Dakshin Haryana Bijli Vitran Nigam Limited ( DHBVNL) is
the Appellant herein. The Appellant filed a Petition for
Aggregate Revenue Requirement for the Financial Year
2012-13. In that Petition, Haryana State Commission
passed the impugned order dated 31.3.2012 denying some
of the claims made by the Appellant.
2. Aggrieved by the denial of those claims, the Appellant has
filed this Appeal.
3. The short facts are as follows:
(a) The Appellant, Dakshin Haryana Bijli Vitran
Nigam Limited is a State Government owned
Company. It became a licensee for Distribution and
Retail Supply business in the State of Haryana in the
year 2004. The area of Distribution and Retail Supply
of electricity by the Appellant is the South Zone of
Haryana.
(b) Uttar Haryana Bijli Vitran Nigam Limited
(UHBVNL), the Second Respondent, is another
Licensee for Distribution and Retail Supply Business in
the State of Haryana. The area of distribution and retail
supply of electricity is the North Zone of Haryana.
Page 2 of 26
Appeal No121 of 2012
(c) Haryana State Commission who regulates the
power sector in the State of Haryana is the First
Respondent.
(d) The Appellant on 30.11.2011 filed a Petition for
Aggregate Revenue Requirement for the Financial
Year 2012-13.
(e) The State Commission, after observing all the
formalities and hearing the parties, passed the
impugned order on 31.3.2012. In this impugned order,
the State Commission dealt with the common issues of
the ARRs of the Appellant as well as UHBVNL, the
Second Respondent, together.
(f) Aggrieved by the denial of some of the claims,
the Appellant has preferred the present Appeal against
the portion of the impugned order which is applicable to
the Appellant affecting its ARRs and tariff.
4. The Appellant has raised the following issues in this Appeal:
(a) Refusal to true-up interest on working capital
borrowings.
(b) Disallowance of Return on Equity
(c) Erroneous demand of banking of power resulting
in the wrongful deduction of Rs.224.8 Crores from the
un-recovered gap at the end of Financial Year 2011-12
Page 3 of 26
Appeal No121 of 2012
(d) Wrongful and unachievable assumption of 100%
collection efficiency.
5. Though several other grounds have been raised in this
Appeal, the learned Counsel for the Appellant has pressed
and confined himself to the above four issues only.
6. Therefore, let us refer to the submissions of the Appellant
with regard to these issues:
(a) Wrongful Denial to True-Up the interest on
Working Capital Borrowings
Interest on working capital borrowing is an
uncontrollable factor which is evident from the
definition of uncontrollable factor in Regulation 7
(9) (ii) of the HERC (Terms & Conditions for
determination of wheeling tariff and distribution &
retail supply tariff), Regulations, 2008. This
Tribunal in its judgment dated 11.8.2011 in
Faridabad Industries Association Vs HERC
reported in 2011 ELR (APTEL) 1527 directed the
State Commission to initiate true-up of financials
including the issues with regard to interest and
finance charges etc., but the State Commission
has refused to true-up the interest cost on
working capital.
Page 4 of 26
Appeal No121 of 2012
(b) Disallowance of Return on Equity
The State Commission did not consider it
appropriate to allow any Return on Equity in
respect of Financial Year 2012-13 as in the past
in violation of the Regulation 16 of the Tariff
Regulations, 2008. That apart, the finding given
by the State Commission on this issue is against
the ratio decided by this Tribunal in the judgment
dated 18.4.2012 passed in the case of HVPNL
Vs HERC reported in 2012 ELR (APTEL) 1315;
(c) Wrongful Deduction of Rs.224.8 Crores from
the unrecovered gap at the end of Financial
year 2011-12
The State Commission while calculating the total
un-recovered revenue gap of Rs.364.59
erroneously reduced the same by an amount of
Rs.272.2 Crores treating this amount as income
in the hands of the Appellant. This Rs.272.2
Crores includes an amount of Rs.224.8 Crores
which actually relates to the banking of power.
In fact, the banking of power is a regular practice
followed in the Sector whereby power during the
months when the demand is low is banked with
other States and drawn down during the months
when the demand is high. For banking of power,
Page 5 of 26
Appeal No121 of 2012
no sale is made. Hence, it is not an income but
merely a value has been assigned to record this
transaction in the book of accounts. While
considering the claim of the Appellant, no
explanation was sought for by the State
Commission from the Appellant. Therefore, the
finding on this issue is wrong.
(d) Calculation of Collection Efficiency
The State commission has erroneously
computed the income of the Appellant on accrual
basis assuming 100% collection efficiency as
against the billed amount. While making such a
computation, the State Commission has failed to
consider that 100% collection efficiency is never
achieved in the normal course of business and
average collection efficiency of the last 10 years
comes to only 96.92%, which illustrates that
more than 3% of revenue remains uncollected
every year. This deteriorates the financial
condition of the Appellant. This fact has been
recognised by the Government of Haryana.
However, the State Commission has failed to
take note of this. As such, the finding on this
issue is wrong.
Page 6 of 26
Appeal No121 of 2012
7. The learned Counsel for the Respondent made a detailed
reply in justification of the impugned order. Let us now
discuss each of the issues.
8. In respect of the First Issue, i.e. the wrongful denial to true-
up the interest on working capital borrowings, it is submitted
by the Appellant that the State Commission has refused to
true-up the interest on working capital although the same is
an uncontrollable factor as per the definition of the
"uncontrollable cost" referred to in Regulation 7 (9) (ii) of the
Haryana Tariff Regulations, 2008 and in spite of the
judgment of this Tribunal in Appeal No.204 of 2010 (2001)
ELR (APTEL) 1527.
9. According to the State Commission (R-1), while truing-up
the financials of the Appellant, this issue has been decided
in compliance of the directions of this Tribunal in Appeal
No.204 of 2010 and also in accordance with the
Regulations, 2008 and therefore, there is no infirmity in this
finding.
10. There is no dispute in the fact that truing-up exercise has to
be undertaken by the State Commission subject to the
compliance of the following conditions:
(a) Prudence check;
(b) Norms as per HERC Regulations; and
Page 7 of 26
Appeal No121 of 2012
(c) The directions issued by this Tribunal.
11. On this issue, taking into consideration all these three
conditions, the State Commission has given the following
finding:
"3.12.2 Truing up of expenses in consequence to the
order of the Hon'ble Appellate Tribunal for Electricity in
case number 204 of 2010
.....The basis for allowing/disallowing expenditure on
true-up is as follows:
1. The interest on working capital is allowed on
normative basis in the ARR and Commission has no
reason to revise the norm. Therefore, no additional
interest on working capital is to be allowed on account
of truing-up."
12. According to the Appellant, the interest on working capital
borrowings is an uncontrollable factor as per the Regulation
7(9) (ii) of the Tariff Regulations, 2008. The impugned order
indicates that the State Commission adopted the norms for
calculation of working capital in accordance with the
Regulations, 2008. Thus, the truing-up of working capital
borrowings calculated is found to be well within the norms.
The State Commission in the impugned order has dealt with
this issue by making the following observations:
"3.12.2 Truing up of expenses in consequence to the order
of the Hon'ble Appellate Tribunal for Electricity in case
number 204 of 2010
Page 8 of 26
Appeal No121 of 2012
UHBVNL has proposed to recover Rs. 16175 million
and DHBVNL proposes to recover Rs. 3614.70 million
on account of true up of various expenses incurred in
FY 2008-09, FY 2009-10 and FY 2010-11. The
Commission has examined each head of expenditure
that has been in variance with the amount allowed in
the ARR. Commission finds that a large number of
expenses in the ARR are based on norms and the
Commission finds no reason to change the basis of
calculation. The expenses claimed by the licensees
and amounts allowed by the Commission are as given
below:
Table 3.29 DHBVNL Approved Vs Actual Expenses(Rs. Crore)
Particulars Approved Actual Difference True Up
Expenditure Expenditure to be true- allowed by
up the
Commission
2008-09
R&M 59.38 33.39 -25.99 -25.99
Expenses
A&G 34.00 60.33 26.33 26.33
Expenses
Interest 77.95 179.74 101.80 0.00
Cost on
borrowings
Depreciation 88.33 97.01 8.68 8.68
Other 0.00 44.63 44.63 0.00
Expenditure
Income 0.32 0.44 0.12 0.12
Tax/FBT
provisions
Net Prior 20.75 -0.42 -21.17 0.00
period
Expenses
Total 280.73 415.12 134.40 9.14
2009-10
R&M 46.63 39.71 -6.92 -6.92
Expenses
A&G 66.36 80.88 14.52 14.52
Expenses
Interest 144.51 251.57 107.06 0.00
Cost on
Page 9 of 26
Appeal No121 of 2012
borrowings
Depreciation 90.97 41.75 -49.22 -49.22
Other 0.00 63.69 63.69 0.00
Expenditure
Income 0.44 0.00 -0.44 -0.44
Tax/FBT
provisions
Net Prior 0.00 -0.42 -0.42 -0.42
period
Expenses
Total 348.91 477.18 128.27 -42.48
2010-11
R&M 58.70 36.47 -22.22 -22.22
Expenses
A&G 73.53 36.95 -36.58 -36.58
Expenses
Interest 169.95 355.82 185.88 0.00
Cost on
borrowings
Depreciation 102.47 68.43 -34.04 -34.04
Other 0.00 37.13 37.13 0.00
Expenditure
Income 0.00 0.00 0.00 0.00
Tax/FBT
provisions
Net Prior 0.00 -31.37 -31.37 -.31.37
period
Expenses
Total 404.65 503.43 98.80 -124.21
The basis for allowing/ disallowing expenditure on true
up is as follows:
1. The interest on working capital is allowed on
normative basis in the ARR and Commission has no
reason to revise the norm. Therefore, no additional
interest on working capital is to be allowed on account
of truing up.
2. Interest on Capital expenditure has been trued up
based on actual capital expenditure incurred,
Page 10 of 26
Appeal No121 of 2012
borrowings to fund the capital additions, rate of
interest and IDC.
3. Other expenditure comprises mainly of provisions
for bad and doubtful debts. The Commission has
allowed the licensees to claim actual write off of
receivable only when it has been demonstrated by
them that adequate efforts were made by them to
recover the dues. No provisional assessment for bad
debts is to be allowed. However, expenditure on
account for compensation for accidents has been
allowed.
4. Prior period expenses comprise mainly of power
purchase cost which is allowed to be trued up as part
of FSA and therefore cannot form part of truing up at
this stage.
5. Prior period expenses for DHBVNL for FY 2008-09
were allowed on actual basis as per prior period
audited accounts. Therefore, these are not to be trued
up now.
3.14.2 DHBVNL
In spite of having been directed by the Commission in
the ARR order for FY 2011-12, the licensee has not
quantified the improvements achieved as a result of
Capital Investment made and also has not submitted
an analysis of the benefits accrued.
......................
The licensees are again directed to quantify the improvements achieved as a result of capital investment made every year and enclose an analysis of the benefits accrued along with the investment proposals of the ensuing year.
Page 11 of 26Appeal No121 of 2012
13. The above observations and findings would show that the State Commission has taken into consideration the relevant clauses of the Regulations, 2008. This Regulation provided for truing-up of capital cost and power purchase cost on the basis of the actual cost incurred by the licensee, which has been allowed by the State Commission in the impugned order. However, under those Regulations, the State Commission fixed the interest on working capital as the short term prime lending rate of SBI as applicable on 01 April of every year.
14. The relevant provisions of the Regulations are reproduced hereunder:
11. Capital Cost:
........
(2) The admissibility of the capital cost shall be subject to the prudence check by the Commission. This shall, however, be limited to the reasonableness of the capital cost, financing structure, interest during construction, working capital margin, efficient technology and such other matters. Any benefit from capital restructuring shall be passed on to the consumers.
Provided that where the actual cost incurred on a capital expenditure project exceeds the estimate of original cost approved as part of the investment plan or where the distribution licensee has reasonable ground to believe that the actual cost will exceed such approved estimate, then the distribution licensee shall Page 12 of 26 Appeal No121 of 2012 apply to the Commission for approval for variation in the estimate of original cost of the project.
19. Interest on Working Capital : (1)The rate of interest on working capital shall be equal to short-term Prime Lending Rate of State Bank of India as applicable on 1st April of the year in which the capital expenditure project has been commissioned or the rate of interest as claimed by the distribution licensee(s) whichever is lower.
(2) The working capital shall be equivalent to one month's O&M expenses of the distribution licensee
(s).
......
22. Cost of Power Purchase- (1) The distribution licensee (s) shall procure power in accordance with the provisions of the Regulations made by the Commission.
.................
(7) Any variation in cost arising out of variation in the volume and cost of power purchase, at the allowed transmission loss level, for reasons beyond the control of the distribution licensee (s) including hydel- thermal mix, shall be allowed to be recovered by the distribution Licensee (s) by way of FSA, as per the formula approved by the Commission."
15. The State Commission pointed out the particulars of the objections of the consumers with regard to the interest and finance charges being utilised by the Utility for funding its inefficiencies. The particulars of the objection are as follows:
Page 13 of 26Appeal No121 of 2012 "2.8.16 Loan funds, interest expenses and current assets / liabilities Objection Only those loans taken for capex should be allowed after prudence check. Loans for making up inefficient operations should not be allowed. Costly loans of DHBVNL should be got refinanced. Interest and finance charges of DHBVNL have increased by 250% from 2008-09 and by 167% over the FY 2010-11. The loans have been provided for creation of assets but have actually been used for funding inefficiencies. The interest on working capital of Rs 557.46 Crores as claimed by DHBVNL is much higher than the interest of Rs 179.02 Crores on long term loans. Increasing working capital of DHBVNL is on account of inefficiencies which should not be passed on to consumers."
16. Refuting the contention of the Appellant that the interest on working capital borrowings is uncontrollable cost, the State Commission has pointed out that it is not an uncontrollable cost under the Regulations.
17. As pointed out by the learned counsel for the State Commission under Regulation 7(9) (ii), only the following uncontrollable costs can be permitted as a pass through:
(a) fuel cost;
(b) cost on account of inflation; and
(c) taxes and duties etc.,
18. The State Commission thus, has taken note of these elements and trued-up the financials of the Appellant in Page 14 of 26 Appeal No121 of 2012 compliance of the directions of this Tribunal and in accordance with the Regulations, bearing in mind the ultimate consumers interest.
19. Therefore, the contention urged by the learned Counsel for the Appellant on this issue does not deserve acceptance. Accordingly, this issue is decided as against the Appellant.
20. The next issue is with reference to the disallowance of Return on Equity.
21. According to the Appellant, the refusal to allow any Return on Equity is contrary to Regulation 16 of the Tariff Regulations as well as the ratio decided by this Tribunal in judgment dated 18.4.2012 reported in 2012 ELR (APTEL) 1315 in the case of HVPNL vs HERC.
22. Let us first refer to the findings given on this issue by the State Commission:
"3.16 Return on Equity The accumulated losses of the two distribution licensees i.e. UHBVNL and DHBVNL have completely eroded their entire net worth. The Commission, on several occasions, has emphasized the need for recapitalization of the state owned distribution companies and infusion of fresh equity by the State Government over and above the equity component of the annual incremental capital expenditure to be undertaken by the distribution companies to modernize and augment the distribution system to meet the increasing load and consumer base of the Page 15 of 26 Appeal No121 of 2012 power utilities as well as their obligations to meet the standard of performance specified by the Commission in order to better serve the electricity consumers in Haryana. However, no progress seems to have been made in this direction.
In view of the above facts, the Commission does not consider it appropriate to allow any return on equity in the FY 2012-13, as in the past, to the distribution licensees."
23. The above findings would show that the State Commission has concluded that despite the directions given by the State Commission to meet the standards of performance specified by the State Commission, the Appellant utility failed to follow the said directions thereby there was a failure to augment their Distribution system to meet the increasing load and that therefore, the State Commission was constrained to disallow the Return on Equity for the year 2012-13.
24. This finding in our view does not reflect the compliance of the Tariff Regulations,2008. The relevant Regulation is Regulation 16 of the Tariff Regulations, 2008 which is as follows:
"Return on equity shall be computed on the equity base determined in accordance with Regulation 13 @ 14% per annum or more as considered appropriate by the Commission."
25. Bare reading of the above Regulation makes it clear that the Commission is required to provide minimum rate of Return of Page 16 of 26 Appeal No121 of 2012 Equity at 14%. The Commission, therefore, cannot reduce the rate of RoE.
26. While dealing with the similar case, this Tribunal in Appeal No.102 of 2011 in the matter of HVPNL Vs HERC in which the very same State Commission allowed Return on Equity only at the rate of 10%, held that the said order was not valid in law since it was contrary to the Regulation 17 of Transmission Tariff Regulations 2008 which provides that the RoE shall be computed at 14% per annum or as determined by the Commission. The relevant observations made by this Tribunal in the judgment in Appeal No.102 of 2011 dated 18.4.2012, are as follows:
"46. In this Case, the Commission's decision to allow RoE @ 10% lacks transparency. In case the Commission had decided to allow RoE at less/higher rate than 14%, it should have declared before hand and sought comments on the same. In this case, the Commission's decision to allow ROE @ 10% is contrary to the Regulations, and we must direct the Commission to allow Return on Equity @ 14% in accordance with Tariff regulations 2008. Once the Regulations have been framed the Commission has to act in accordance therewith."
27. The reading of the above observations would make it clear that the State Commission should have followed the Regulations which allow the Return on Equity at the rate of 14%. In the event the State Commission decided either to reject the Return on Equity or allow higher rate than 14%, Page 17 of 26 Appeal No121 of 2012 the State Commission should have declared its view before hand and given opportunity to the Utility by seeking for the comments from them regard to the said issue.
28. However, in the present case Regulation 16 mandates the Commission to allow Return on Equity at minimum rate of 14%. This Tribunal in number of cases has held that the Commission is bound by its own regulations. Accordingly, the Commission should have allowed RoE at 14% per annum. It is submitted by the Learned Counsel for the State Commission that the impugned order was passed on 31.3.2012 but this Tribunal had decided the issue only thereafter i.e. on 18.4.2012 and therefore, the State Commission was not able to follow the said directions. Hence, this issue is decided in favour of the Appellant. In view of this, the State Commission is directed to pass the consequential orders.
29. The next issue is with reference to Wrongful Deduction of Rs. 224.8 Crores for the un-recovered gap at the end of Financial year 2011-12.
30. According to the Appellant, the State Commission while calculating the total un-recovered revenue gap of 364.59 Crores, has erroneously reduced the same by an amount of Rs.272.2 Crores which is the revenue from inter State sale of power by treating this amount as income in the hands of Page 18 of 26 Appeal No121 of 2012 the Appellant and in respect of this issue, no explanation was sought for from the Appellant by the State Commission.
31. It is also pointed out that this amount of Rs.272.2 Crores also includes an amount of Rs.224.8 Crores which actually relates to the banking of power which has been shown under inter State sale for accounting purposes.
32. According to the State Commission, the Appellant did not provide for any banked power under any separate head in the balance sheet and the same was reflected under inter- State sales and that apart, the licensee has failed to demonstrate that an amount of Rs.224.8 Crores realized by it from banking has been reduced from the cost of power while estimating the FSA recovery filed by it for the Financial Year 2010-11.
33. Let us see the findings on this issue in the impugned order:
"4.1............
After determination of the revenue gap arising out of supply to the AP Tube - Well consumers including Fisheries and Horticulture as above and after adjustment of the cross subsidy generated, the Commission finds that the revenue for FY 2012-13 at current tariff falls short of the revenue requirement by Rs. 16668.06 million as given below:
Table 4.1 Calculation of revenue gap at existing tariff for FY 2012-13 (Rs. million) UHBVNL DHBVNL TOTAL Page 19 of 26 Appeal No121 of 2012 Revenue requirement 72940.53 82848.02 155788.54 Revenue at Current Tariffs 38254.53 611125.31 99379.84 Revenue Gap 34686.00 21722.71 56408.70 Agriculture deficit/subsidy 21731.47 18009.17 39740.64 Uncovered revenue gap for FY 2012-13 12954.53 3713.54 16668.06 In addition to the current revenue gap of Rs. 16668.06 million, the Commission in its earlier orders on ARRs of UHBVNL and DHBVNL for Distribution and Retail Supply Business has determined the uncovered revenue gap of Rs. 25338.18 million for previous years as given below:
Table 4.2 - Total uncovered Revenue Gap (Rs. million) UHBVNL DHBVNL TOTAL Revenue Gap for FY 2009-10 5870.16 1454.31 7324.47 Revenue Gap for FY 2010-11 11443.44 7866.04 19309.48 Total 17313.60 9320.35 26633.95 Less Revenue from interstate sale of 2840.22 2722.00 5562.22 power Less Additional revenue from revised tariff 2043.49 3343.00 5386.49 (as per audited accounts) Net Revenue Gap upto FY 2010-11 12429.90 3255.34 15685.24 Revenue Gap for FY 2011-12 9262.69 390.25 9652.94 Total revenue gap for previous Years 21692.59 3645.59 25338.18 Unrecovered revenue gap for FY 2012-13 12954.53 3713.54 16668.06 Total uncovered revenue gap 34647.11 7359.13 42006.24
34. The learned Counsel for the Appellant relied upon the following chart which was issued by the HPPC to show the Page 20 of 26 Appeal No121 of 2012 transactions relating to the Inter-State sale only for accounting purposes. The chart is as follows:
S.No. Name of the Trader April'10 March'11 (Power given during the Year Quantum (LUs) Amount Rate
1. DELHI/TATA 34.78109 10295203 2.96
2. Delhi/TPC 19.80313 5861726 2.96
3. Assam/NVVN 344.95014 102105242 2.96
4. West Bengal/NVVN 835.96876 247446753 2.96
5. Uttar Pradesh/ Mittal 1396.55040 413378918 2.96 Power
6. Himachal Pradesh 1978.80044 585724930 2.96
7. Tamil Nadu 1083.58088 320739942 2.96
8. J&K 929.97960 275273962 2.96
9. GRIDCO/NVVN 642.08826 190058125 2.96
10. Uttarakhand/Mittal 310.96860 92046706 2.96
11. Andhra Pradesh/Mittal 17.25885 5108620 2.96 Total 7594.73016 2248040126 2.96
35. According to the Appellant, the banking of power is a regular practice followed in the sector whereby the power is banked with other States during the months when demand is low and drawn during the months when the demand is high. It is further stated that for banking of power, no sale is made and no income is derived by the Appellant but it is merely a value which has been assigned to record this transaction in the books of accounts and this has not been taken note of by the State Commission.
Page 21 of 26Appeal No121 of 2012
36. The State Commission in the written submissions submits that the Appellant failed to demonstrate that the amount of Rs.224.8 Crores realised by it from banking has been reduced from cost of power while estimating the FSA recovery filed by it for the financial year 2010-11.
37. Under those circumstances, it will be proper to give opportunity to the Appellant to place all the materials before the State Commission to decide as to whether the amount of Rs.224.8 Crores from the un-recovered gap could be deducted in the light of the plea made by the learned counsel for the Appellant that the said amount was not an income, but was only a value which was recorded in the books of account. Accordingly, the State Commission is directed to consider this issue afresh after giving opportunity to the Appellant. This issue is decided accordingly.
38. The last issue is with reference to the Wrongful Assumption of 100% Collection Efficiency.
39. According to the Appellant, the State Commission has erroneously computed the income of the Appellant on accrual basis assuming 100% collection efficiency against the billed amount without considering the fact that 100% collection efficiency in the normal course of business can never be achieved. He has also produced the chart to show Page 22 of 26 Appeal No121 of 2012 that the average collection efficiency of last 10 years would come about 96.92%.
40. This contention is refuted by the learned Counsel for the State Commission.
41. According to the learned Counsel for the State Commission, the table provided by the Appellant is at variance with the submissions made by the Appellant before the State Commission as recorded in Para 2.6 of the impugned order. The same is as follows:
"2.6 Presentation by MD DHBVNL MD /DHBVNL in his presentation presented the salient features of the ARR of DHBVNL. ..............
Highlighting DHBVNL achievements, he said that DHBVNL has always been able to meet the distribution loss target given by the Commission except for FY2009-10; their collection efficiency has been more than 100% except for slight fall in FY 2010-11 (97.68%), DT Damage rate has been brought down from 19% in 2004-05 to 10-11%; HT- LT ratio has been improved from 0.60 in 2003-04 to 0.92 in 2011-12 (upto September)."
42. It is further contended by the State Commission that under Regulations collection efficiency is not an uncontrollable cost, which can be allowed as a pass through; the relevant Regulation would provide for (a) fuel cost (b) costs on account of inflation (c) taxes and duties, these alone could Page 23 of 26 Appeal No121 of 2012 be considered to be uncontrollable cost and as such, the deficiency in collection efficiency, as per the Regulations cannot be passed on to the consumers.
43. The State Commission while dealing with this issue has referred to the objections raised by the consumers. Those objections are as follows:
"2.8.16 Loan funds, interest expenses and current assets / liabilities Objection Only those loans taken for capex should be allowed after prudence check. Loans for making up inefficient operations should not be allowed. Costly loans of DHBVNL should be got refinanced. Interest and finance charges of DHBVNL have increased by 250% from 2008-09 and by 167% over the FY 2010-11. The loans have been provided for creation of assets but have actually been used for funding inefficiencies. The interest on working capital of Rs 557.46 Crores as claimed by DHBVNL is much higher than the interest of Rs 179.02 Crores on long term loans. Increasing working capital of DHBVNL is on account of inefficiencies which should not be passed on to consumers."
44. In view of the above, the contention of the learned Counsel for the State Commission that a higher working capital and lower collection efficiency assumption sought by the appellant run contrary to the consumers interest, deserves acceptance. Accordingly, this issue is decided as against the Appellant.
Page 24 of 26Appeal No121 of 2012
45. Summary of Our Findings (1) The Appellant's contention on the 1st issue relating to Interest on working capital does not deserve acceptance. The issue is decided against the Appellant.
(2) The Commission is bound by its own regulations and accordingly should have allowed Return on Equity at 14% in accordance with the Regulation 16 of the Tariff Regulations,2008.
(3) It will be proper to give opportunity to the Appellant to place all the materials before the State Commission to decide as to whether the amount of Rs.224.8 Crores from the un-recovered gap could be deducted in the light of the plea made by the learned counsel for the Appellant that the said amount was not an income, but was only a value which was recorded in the books of account. Accordingly, the State Commission is directed to consider this issue afresh after giving opportunity to the Appellant. This issue is decided accordingly.
(4) The contention of the learned Counsel for the State Commission that a higher working capital and lower collection efficiency assumption sought by the appellant run contrary to the consumers interest, deserves acceptance. Accordingly, this issue is decided as against the Appellant.
Page 25 of 26Appeal No121 of 2012
46. In view of the above findings, the impugned order is set aside to the extent indicated above. Thus, the Appeal is partly allowed.
47. The State Commission is directed to pass the consequential order in terms of the observations made above in respect of those issues.
(V.J TALWAR) (Justice M. Karpaga Vinayagam)
Technical Member Chairperson
Dated: 03rd July, 2013
√REPORTABLE/NON-REPORTABALE
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