KERALA STATE ELECTRICITY REGULATORY COMMISSION THIRUVANANTHAPURAM. PRESENT: Shri. C. Abdulla, Member Shri. M.P.Aiyappan, Member.

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1 KERALA STATE ELECTRICITY REGULATORY COMMISSION THIRUVANANTHAPURAM PRESENT: Shri. C. Abdulla, Member Shri. M.P.Aiyappan, Member August 4, 2009 In the matter of determination of Surcharge, Additional Surcharge, under Sections 39, 40 and 42 of the Electricity Act, 2003 and Transmission Charges and Wheeling Charges under Sec 62 (b) and 62(c) and stand by charges for open access consumers. ORDER 1. Introduction: 1.1Sections 39(2)(d)(ii) and 40(c) of Electricity Act, 2003 (hereinafter referred to as the Act ) provide for payment of a surcharge (hereinafter also referred to as the cross-subsidy surcharge to distinguish it from the additional surcharge referred to in section 42(4) of the Act) when a transmission system is used for open access for supply of electricity to a consumer. Section 42(2) of the Act provides for payment of the surcharge in addition to the wheeling charges as determined by the State Commission. As per these provisions, the surcharge has to be utilised to meet the requirements of current level of cross-subsidy. Further, Section 42(4) of the Act provides that a consumer permitted to receive supply of electricity from a person other than the Distribution Licensee of the area in which such consumer is located, shall be liable to pay an additional surcharge to meet the fixed cost of the distribution licensee arising out of his obligation to supply. 1

2 1.1 With a view to initiating a consultation process, the Commission presented its views on the aforementioned provisions of the Act in a draft order published on A public notice was issued on seeking comments and suggestions on determination of cross-subsidy surcharge and other associated issues discussed in the draft order, also affording an opportunity of hearing to those who wanted to be heard in person in the public hearing. The list of the individuals /organisations who have responded to the draft order and of those who made oral submissions before the Commission during the public hearing held on , is enclosed to this Order vide Annexure-I 1.2 The Commission had specified the Terms and Conditions of Open Access on vide Kerala State Electricity Regulatory Commission ( Terms and conditions for open access) Regulations, As per Clause 13 (1)(i)when open access is availed from transmission licensee transmission charges/wheeling charges as determined by the Commission under 62 (1) (b) shall be applicable. As per Clause 13(1)(ii) of the regulation when open access is availed from distribution licensee wheeling charges for use of distribution system as determined by Commission shall be applicable. Clause 13(1)(iv) of the said Regulation provides that Open Access users of the Transmission and / or Distribution System where such open access is for delivery of electricity to a consumer s premises in the area of supply of a distribution licensee, shall pay to the distribution licensee the cross-subsidy surcharge as determined by the Commission from time to time under Section 42 (2) of the Act and also provides for liability for payment of additional surcharge under Section 42(4) of Act. 2

3 1.3 In the draft order Commission had proposed to calculate transmission charges and Wheeling Charges on postage stamp basis. Transmission charges are calculated both on per unit basis or on per MW basis. The cross-subsidy has been defined as the difference between the applicable retail tariff and the cost of supply to a particular consumer category connected at a particular voltage. Draft order adopted the formula of the National Tariff Policy. National Tariff Policy prescribes the following formulae for determination of cross subsidy surcharge for various categories of consumers. Surcharge formula : S = T [C(1+L/100) + D] Where S is the surcharge T is the Tariff payable by the relevant category of consumers; C is the Weighted average cost of power purchase of top 5% at the margin excluding liquid fuel based generation and renewable power. D is the Wheeling charge L is the system Losses for the applicable voltage level, expressed as a Percentage The first step in the determination of cross subsidy surcharge is to work out the cost of marginal power purchase of top 5% power. As per the data of Tariff Order of FY 08-09, 1.4 The weighted average cost of power purchase of top 5% is computed with reference to the generating costs of the marginal stations of the distribution licensee in the Commission-approved merit order (in its Tariff Orders) which is based on the variable cost alone and not on the aggregate of the fixed and the variable costs. This option is based from the 3

4 perspective of a distribution licensee whose marginal stations will not get dispatched to the extent the open access load move away and the licensee will thereby avoid the purchase of electricity from such costly marginal stations (highest variable cost). The power purchase cost in this option therefore is with reference to the generating cost of the last marginal station of the distribution licensee in the merit order approved by the Commission, based on the variable cost. The weighted average costs of the of power purchase of top 5% of power is estimated as the surcharge. 2. Methodology for determination of Transmission Charges: Commission s Proposal: In the draft order, the Commission had proposed to calculate transmission charges on postage stamp basis either on per unit basis or on per MW basis. 2.1 Comments received. (a) KSEB has stated that the T&D losses between the point of injection and point of drawal of open access consumers shall be born by the open access consumer. Hon Commission may be requested to fix T&D losses at different voltages. Till Hon Commission fix the same, T&D losses as 5% at EHT side may be fixed. KSEB further stated that Commission has arrived open access charges in transmission based on the peak demand of MW. Transmission charges payable as arrived in the ARR of transmission sector is divided by peak demand of 2800 MW. The peak demand is in the system only for a short duration and most part of the day the average power transmitted to the system is about 1700 to 1900 MW only. Hence if the transmission charges are finalised based on the peak demand, there is underrecovery of transmission charges from open access consumers and the short recovery is 4

5 ultimately passed on to those who do not opt for open access.. Hence Transmission Charges shall be fixed based on average demand instead of peak demand. KSEB further stated that the provisional accounts for the Board for the year are finalised. Hence instead of segregation of assets based on the accounts for the year , accounts for the year may be adopted. (b) Kerala HT and EHT Industrial Consumers Association has requested Commission to have a look at 5% T&D loss assumed in the case of EHT category. In their estimation it is less than 5%. In the order dated on M/s Indals petition for Open Access, Commission has taken EHT loss as 3%. Similarly T&D loss considered in the case of HT consumers is on the higher side. In petition TP No 54 of 2008 dated of KSEB Proposal for imposing thermal surcharge to all categories of consumers including licensees in paragraph 28 it is stated as below. The total anticipated power consumption of the HT and EHT categories for the year is MU. (EHT 1130 MU, HT MU. If 25% restriction is introduced on energy usage then, the reduction in energy consumption for the remaining eight months for the year will be MU. Considering a weighted average transmission loss of 8% in EHT and HT together (5% in EHT and 10% in HT)the net reduction in energy demand will be MU. If this power is not scheduled from BSES, KSEB will be relieved from additional financial liability to the tune of Crore. KSEB has estimated T&D loss in EHT as 5% and in HT category as 10%. They therefore requested that considering the points raised in the above, Transmission loss for EHT should be taken as 3% and HT 8%. (c) M/s Binani Zinc stated that in the order of Hon Commission dated 5

6 on open access of M/s. Indal, Commission fixed a transmission charge of 10 Ps/Unit and transmission loss as 3%. But the figurers considered in the present order is higher. Transmission loss of 5% has been considered by the Commission for EHT transmission. They requested to limit it to 3% as decided by the Commission in its order cited above Commissions views and decision The Commission, as given in draft order would adopt Postage Stamp method for determination of transmission charges as postage stamp method is simple and easy to implement, particularly in the absence of voltage-wise details of assets of transmission. Regarding the charges on mega watt basis for open access customers, the Commission notes that the proposal of the Commission to determine the charges on MW basis is objected by KSEB suggesting that only average power in the range of 1700 MW to 1900 MW and not Maximum Demand of 2800 shall be taken for estimating Transmission Charges. Therefore, till such time the KSEB files its proposals for determination of transmission charges on MW basis to open access customers, it is appropriate to follow energy based transmission charges uniformly. The Commission proceeds with determination of transmission charges based on per unit basis. Commission approves 5% as Transmission loss and directs KSEB to conduct field studies and estimate Transmission loss and submit tariff proposal for transmission along with proposal for ARR and ERC for Transmission Charges Energy based Recoverable ARR for Transmission Energy in the System Less Transmission loss 5% Rs Lakh MU MU 6

7 Transmission Charge Payable in cash 32 Ps/Unit 3. Methodology for determination of wheeling Charges: 3.1 Commission s Proposal: The Commission has determined wheeling charges in the draft Order based on postage stamp method. 3.2 Comments received (a) KSEB has informed that State Commission has proposed 25% of the Distribution expenses as wheeling charges. This is not agreeable. The open access consumers are taking the KSEB system for conveyance of their energy. Wheeling charge is per unit cost in the distribution sector for delivering one unit from transmission end to Distribution sector. Hence full distribution cost on per unit basis may be fixed as wheeling charges. When open access is allowed from distribution, ie the point of drawal is 11 kv and point of injection is 33 kv or above, the open access customer has to bear transmission charges and wheeling charges and losses in transmission and distribution sector in addition to surcharge and additional surcharge applicable. The draft notification is silent on this. Till Hon Commission fixes provisionally, T&D loss as 12 % on HT side may be fixed. (b) Kerala HT and EHT Industrial Electricity Consumers Association has pointed out that T&D loss at HT may be taken as 8%. 3.3 Commission s views/decision: Considering the views expressed by the stake holders the Commission 7

8 decides that 50% of distribution expenses shall be taken as 11 kv expenses and wheeling costs may be estimated accordingly and that 10% shall be taken as the Wheeling Charges in kind for 11 kv consumers II Wheeling Charges ARR (33kV/22kV/11kV) Consumers i) Recoverable ARR for distribution Rs, Lakhs ii) Energy carried in 33/22/11kV System is Energy Generated and Power Purchase less Energy Consumed by EHT Consumers inclusive of losses. Energy Gen and Power Purchase Consumption of EHT consumers EHT Loss at 5% Energy carried by 33/22/11kV Less 10% Loss at 11kV/22kV/33kV MU MU MU MU MU Recoverable ARR for 11kV/22kV/33kV us 50% of Distribution expenses. (Assumption) Recoverable ARR for 11/22/33kV Lakhs Wheeling Charges Payable in cash 50 Ps/Unit 4. Methodology for determination of Surcharge: 4.1 Commission s Proposal: The Commission, in its draft order, had proposed computation of cross subsidy surcharge by applying formula prescribed in the National Tariff Policy for determination of cross subsidy surcharge for various categories of consumers. 8

9 Surcharge formula : S = T [C(1+L/100) + D] Where S is the surcharge T is the Tariff payable by the relevant category of consumers; C is the Weighted average cost of power purchase of top 5% at the margin excluding liquid fuel based generation and renewable power. D is the Wheeling charge L is the system Losses for the applicable voltage level, expressed as a Percentage The first step in the determination of cross subsidy surcharge is to work out the cost of marginal power purchase of top 5% power. As per the data of Tariff Order of FY 08-09, 4.2 Comments received. (a) KSEB has pointed out that as per surcharge formula proposed in the tariff policy by allowing open access the distribution licensee could be in a position to discontinue the purchase of power above 5% from the top of the merit order (except liquid fuel stations and renewable energy sources.). Accordingly the Commission has considered the energy from nuclear stations KAIGA and MAPS are the likely source that can be discontinued by allowing open access. But it may be noted that KSEB and other utilities should have to procure the entire portion of energy generated from Nuclear Stations irrespective of cost. By adopting cost of energy from Nuclear stations Hon Commission has overlooked the rationale for adopting such a formula in the tariff Policy. Even by allowing open access or not, KSEB could not discontinue the purchase of power from Nuclear Stations. Hence cost of top 5% of energy 9

10 purchase excluding liquid fuel stations, renewable and Nuclear Stations may be considered for arriving cost of energy likely to be discontinued. by allowing open access. Hence power purchase cost of NLC may be considered in the formula. (b) Sri B. Pradeep, KSEB Officers Association pointed out that third proviso of Sec 39 of Electricity Act, 2003 states that surcharge shall be utilized for the purpose of meeting the requirement of current level of cross subsidy. Thus as per the Act the surcharge is required for fully meeting the current level of subsidy and not partly as proposed by the Commission. The provisions in the open access shall not affect financial capability of KSEB while continuing its obligations to provide electricity to non profit and rural as well as weaker and downtrodden segments at subsidized rates. Electricity Act or Tariff Policy is not for promoting competition at the cost of State Utilities. Legal provisions in the Electricity Act, 2003 and National Tariff Policy are to safeguard interest of the State Utilities. But as per the draft order Commission has arrived the surcharge payable by HT and EHT consumers for maintaining the present level of cross subsidy as zero except for HT IV consumers. It will affect the ability of KSEB in providing electricity at subsidized rate to agriculture, domestic, orphanages and other weaker and downtrodden segments of the Society. State Commission has ignored the policy directions of State Government under Sec 108 of Electricity Act, 2003 wherein it is clearly specified that if any question arises on such matter of policy involving public interest, the decision of State Government thereon shall be final. Energy from Nuclear Stations may not be considered for arriving weighted average cost power purchase of top 5% Power purchase cost of NLC may be considered in the formula. 4.3 Commissions views/decisions Considering the views expressed by the stakeholders Commission decides that Nuclear Stations may not be considered for arriving weighted 10

11 average cost of power purchase since the perspective that the marginal station will not get dispatched to the extend that open access load move away and KSEB will avoid the purchase of electricity from such costly marginal stations is not applicable to nuclear stations as they are must run stations. The next Station in merit order is NLC-II Stage II station with a total cost of 197 Ps/Unit Summary of Cross Subsidy Surcharge for Open Access Consumers (Detailed Calculation as per Annexure I) Sl No Category Cross Subsidy Surcharge Ps/Unit 1) EHT (66 kv) 130 2) EHT (110 kv) 119 3) HT I (Industrial) 81 4) HT IV (Commercial) Standby Charges 5.1 Proposal of the Commission Commission has proposed tariff applicable to the category of consumer for providing standby arrangements by the licensee for open access consumer. 5.2 Comments from stakeholders (a) KSEB has pointed out that in the draft order Hon Commission has proposed that in case of outages of generation open access, standby arrangements should be provided by KSEB on payment of tariff applicable to that category. But in the Tariff Policy it is clearly spelt out that stand by arrangements should be provided by licensee on payment of tariff for temporary connection to that consumer category as specified by the appropriate Commission (b) HT and EHT Industrial Consumers Association has pointed out that it is very welcome directive the Hon Commission has given to the licensee that in case of outages of generator supplying to a consumer on open 11

12 access, standby arrangements should be provided by KSEB. But as regards the payment for standby arrangement more clarity is required. Their apprehension is whether demand charges as specified in the tariff order will be applicable for entire month or will it be on pro rata basis. The right practice would be to compute average cost of electricity (including energy charge and demand charge) to the consumer for a continuous supply throughout the month and levy that rate for the energy supplied by KSEB as standby arrangement. 5.3 Commissions decision Considering the views expressed by stake holders Commission decides that the average rate (including both fixed and energy charges) shall be payable by consumers in the tariff category applicable to them as standby charges ORDER : Accordingly the Commission orders the following rates which shall continue till revised by the Commission. I Transmission Charges 32 Ps/Unit II Wheeling Charges 50 Ps/Unit III Cross Subsidy Surcharge (a) EHT (66 kv) (b) EHT (110 kv) (c) HT I (Industrial) (d) HT IV (Commercial) 130 Ps/Unit 119 Ps/Unit 81 Ps/Unit 177 Ps/Unit IV Standby charges Average rate (including both fixed and energy charges) Sd/- Member (Finance) Sd/- Member (Engg) 12

13 Approved for issue Sd/- Secretary (in Charge) Annexure I List of persons attended the Public hearing held on Shri.George Thomas, President HT & EHT Industrial Electricity Consumers Association 2. Shri.A.A.M.Navaz, Binani Zinc 3. Shri.T.V.Chandran, Cochin Special Economic Zone 4. Shri. Anji.N.Kollemparamp, Kakkanad 5. Shri.K.R. Radhakrishnan, Manager, Carborandum Universal 6. Shri.S.Krishnankutty, Consumer, Thiruvananthapuram 7. Shri.M.Ravindran Nair, Contips, Thiruvananthapuram 8. Shri.A.Jesurajan, MPS Steel Castings Pvt Ltd, Palakkad 9. Shri.Shaji Mathew, Paragon Steels Pvt Ltd, Palakkad 10. Shri. Rajesh J.Kuruvilla, Manager, Carborandum Universal Ltd, Kalamassery 11. Shri.K.K.Ajain, CE (C&T), KSEB 12. Shri.V.Ramesh Babu, Dy.CE (TRAC), KSEB 13. Shri.P.V.Sivaprasad, EE, TRAC 14. Shri.B.Pradeep, General Secretary, KSEB Officer s Association 15. Shri.G.Sreekumar, Secretary, KSEB Officer s Association 13

14 Annexure II Cross Subsidy Surcharge ( ) Total Purchase * 5% *Excluding liquid fuel stations Marginal Purchases Station MU Cost Ps/Unit NLC-II Stage I Weighted Average 1.97 Rs/kWh At HT side Tariff of EHT consumer (66 kv) 3.68 Rs/kWh Tariff of EHT consumer (110 kv) Tariff for HT I Industrial Tariff for HT IV Commercial 3.57 Rs/kWh 3.93 Rs/kWh 4.89 Rs/kWh S=T-[C(1+L/100)+D] S Surcharge T tariff payable by relevant category of consumers C Weighted average cost of power purchase of top 5% in margin D wheeling Charges L System Loss Surcharge EHT Consumer EHT (66 kv) 14

15 T = 3.68 Rs/Unit C= 1.97 Rs/Unit D= Wheeling Charge = 32 Ps/Unit L= 5% Surcharge 130 Ps/Unit EHT (110 kv) T = 3.57 Rs/Unit C = 1.97 Rs/Unit D = Wheeling Charge = 32 Ps/Unit L = 5% Surcharge 119 Ps/Unit HT Consumer HT I (Industrial) T = 3.93 Rs/Unit C = 2.38 Rs/Unit D = Wheeling Charge = 50 Ps/Unit L = 10% Surcharge 81 Ps/Unit HT IV (Commercial) T = 4.89 Rs/Unit C = 2.38 Rs/Unit D = Wheeling Charge = 50 Ps/Unit L = 10% Surcharge 177 Ps/Unit Cross Subsidy Surcharge for Open Access Consumers Sl.No. Category Cross Subsidy Surcharge Ps/Unit 1 EHT (66 kv) EHT (110 kv)

16 3 HT I (Industrial) 81 4 HT IV (Commercial)