DIS­COMS IN­FLATED DUES BY RS 8K CR: CAG

AU­DI­TOR MAKES CASE FOR CUT IN POWER TAR­IFF

Resource Digest - - GAS -

The three pri­vate power dis­tri­bu­tion com­pa­nies (dis­coms) in the cap­i­tal in­flated their dues to be re­cov­ered from con­sumers by al­most Rs 8,000 crore, the Comptroller and Au­di­tor Gen­eral (CAG) has said in its re­port on the dis­coms and claimed that there is scope for re­duc­ing tar­iffs in the city. The 212page confidential re­port, ac­cessed by TOI, has in­dicted the three power dis­tri­bu­tion com­pa­nies -BSES Ya­muna Power Ltd (BYPL) and BSES Ra­jd­hani Power Ltd (BRPL) con­trolled by Anil Am­bani's Reliance group, and Tata Power Delhi Dis­tri­bu­tion Ltd (TPDDL) -on sev­eral counts.

It says the com­pa­nies ma­nip­u­lated con­sumer fig­ures and scrap sale de­tails, and took a se­ries of ac­tions detri­men­tal to con­sumer in­ter­ests. Th­ese in­clude buy­ing costly power, in­flat­ing costs, sup­press­ing rev­enue, deal­ing with other pri­vate com­pa­nies with­out ten­ders and giv­ing un­due favours to group com­pa­nies. Its most damn­ing rev­e­la­tion re­lates to in­fla­tion of reg­u­la­tory as­sets (RA) -pre­vi­ously in­curred losses that can be re­cov­ered from con­sumers if per­mit­ted by the reg­u­la­tory author­ity.

“The RA of three dis­coms which stood ap­proved as on March 31, 2013, were Rs 13,657.87 crore. How­ever, au­dit find­ings con­tained in var­i­ous chap­ters of this re­port in­di­cate that the RA of the three dis­coms were in­flated by at least Rs 7,956.91 crore,” the re­port says.

Im­ple­men­ta­tion of the au­dit find­ings could lead to a dra­matic re­duc­tion in the dis­coms' fi­nan­cial li­a­bil­i­ties, re­sult­ing in a sig­nif­i­cant re­duc­tion in bills. This would en­dorse activists' claims that high bills were un­jus­ti­fied. The CAG re­port also raises ques­tions over the con­duct of Delhi Elec­tric­ity Reg­u­la­tory Com­mis­sion (DERC) and gov­ern­ment nom­i­nees on the board of the three dis­coms.

The au­dit en­dorses the claims of the Aa­maadmi Party and other activists that high power tar­iffs in Delhi were un­jus­ti­fied. The 49-day old AAP gov­ern­ment led by Arvind Ke­jri­wal had or­dered the spe­cial CAG au­dit of the power sec­tor on Jan­uary 1, 2014.

“Anal­y­sis shows that in­ef­fi­cien­cies get loaded to the cost of power at sev­eral stages from the source till it reaches the con­sumer -that is, in gen­er­a­tion, trans­mis­sion and dis­tri­bu­tion losses -making the re­tail price sig­nif­i­cantly higher. There is a scope for re­duc­ing the cost of power by re­duc­ing in­ef­fi­cien­cies at var­i­ous stages,” the au­dit re­port says.

The CAG has also rec­om­mended that DERC re­view the ag­gre­gate rev­enue re­quire­ment (ARR, which is the gap be­tween rev­enue and al­lowed ex­pen­di­ture) and reg­u­la­tory as­sets of var­i­ous years in the light of the find­ings. ARR and RA are the cru­cial fig­ures on the ba­sis of which tar­iff is de­cided.

The re­port goes into de­tail on how the dis­coms bloated their reg­u­la­tory as­sets.

“The RA of dis­coms were in­flated due to fail­ure on the part of dis­coms to in­clude cer­tain in­come as NTI (non-tar­iff in­come), non short ac­count­ing of cer­tain other in­comes, ac­count­ing er­rors, not bring­ing cler­i­cal er­rors in true up or­ders to the no­tice of DERC and non-re­cov­ery of wheel­ing charges from other li­censees,” the au­dit says.

“Fur­ther, vi­o­la­tion of DERC reg­u­la­tions in re­im­burse­ment of taxes, mis­rep­re­sent­ing facts to the DERC, net­ting of in­come by ex­penses, mis­clas­si­fi­ca­tion of as­sets and claim­ing ex­penses

thereon, claim­ing ex­cess re­turn on eq­uity and car­ry­ing cost on RA has also re­sulted in in­crease in RA,” it adds.

The re­port ac­cuses the Reliance-led dis­coms of “un­eco­nom­i­cal and in­ef­fi­cient oper­a­tions“, lead­ing to op­er­a­tional losses and neg­a­tive net worth. Th­ese re­sulted in their low credit rat­ings.

“Due to low credit rat­ings, BRPL and BYPL availed loans at higher in­ter­est rates. BRPL and BYPL did not de­clare div­i­dend or bonus shares, how­ever, TPDDL de­clared div­i­dend and also is­sued bonus shares,” it says.

The au­dit found that the dis­coms in­curred op­er­a­tion and main­te­nance (O&M) ex­pen­di­ture in ex­cess of norms fixed by DERC.“THE bur­den of in­ef­fi­cien­cies of dis­coms re­flected in the shape of higher rate of WACC (weighted av­er­age cost of cap­i­tal) and car­ry­ing cost on RA, which was passed on to the con­sumers,” it says.

The dis­coms also paid a sig­nif­i­cant amount as an­nual fixed charges to some gen­er­at­ing sta­tions with whom they had long term power pur­chase agree­ments though they hardly bought any power from them. The re­port said dis­coms paid fixed charges of Rs 353 crore to Pra­gati-iii till 2012-13, cor­re­spond­ing to the de­clared ca­pac­ity of the plant, of which fixed charges of Rs 166.82 crore were paid with­out get­ting power. Sim­i­larly, fixed charges of Rs 201 crore were paid to gas­based power plants of NTPC at Anta, Au­raiya and Dadri from 2007-08 to 2012-13, with­out get­ting power.

The Rithala plant charged Rs 140.3 crore from TPDDL as fixed charges on the ba­sis of de­clared ca­pac­ity be­tween Fe­bru­ary 2011 to March 2013, whereas the plant gen­er­ated only 35% of power. “Thus, TPDDL has paid Rs 93.5 crore out of Rs 140.40 crore as fixed charges to Rithala plant with­out get­ting power dur­ing Fe­bru­ary 2011 to March 2013,” the au­dit says, adding that the Rithala plant was con­tin­u­ing to charge fixed cost from the TPDDL.

“Dur­ing the pe­riod un­der au­dit, th­ese ‘dead costs’ which formed part of the power pur­chase cost of the dis­coms had to be borne by con­sumers,” the re­port says.

Delhi State Load Dis­patch Cen­tre (SLDC) man­ages in­flow and out­flow of power be­tween the na­tional grid and Delhi. It is based on a `merit or­der of dis­patch', which sched­ules cheap power first and then costlier power. “But the sched­ul­ing or­der sub­mit­ted by the com­pa­nies was not con­sid­ered by SLDC. Had this sched­ul­ing been fol­lowed, BRPL and BYPL could have saved Rs 203 crore and Rs 147 crore, re­spec­tively, while TPDDL could have saved Rs 565 crore on its cost of power dur­ing 2011-12 and 2012-13,” the au­dit found.

The CAG says that the dis­coms did not un­der­take any cost ben­e­fit anal­y­sis, nor did they take steps to re­duce their power pur­chase cost through op­ti­mum sched­ul­ing.“even TPDDL filed a pe­ti­tion (be­fore DERC) only af­ter the CAG au­dit,“the re­port says.

The au­dit also pointed out that the quan­tum of power pur­chased by the dis­coms was more than what was ac­tu­ally con­sumed by their con­sumers dur­ing most part of the year, cre­at­ing a sur­plus power sit­u­a­tion. “The avail­abil­ity of power in Delhi was more than its re­quire­ment, making it the only power sur­plus state in the north­ern grid,” the re­port said. “This meant that the con­sumer paid for higher load (near peak load) for the whole year though this higher load was con­sumed for only a few hours dur­ing the whole year,” it says.

“The sur­plus power had to be sold in the mar­ket. Un­til 2009, dis­coms had made a profit in sell­ing off the sur­plus power but later, they in­curred loss in the sale. There­fore, ex­cess pur­chase and its sale added to the al­ready high cost of power pur­chased from the gen­er­a­tors... This in­creas­ing loss has widened the rev­enue deficit of the dis­coms, re­sult­ing in in­creas­ing reg­u­la­tory as­sets and tar­iff bur den on the con­sumers,” the CAG notes.

The cu­mu­la­tive loss in­curred on the sale of sur­plus power till the end of 2012-13 was Rs 806.88 crore for BRPL, Rs 1,062.34 crore for BYPL and Rs 1,098.65 crore for TDDPL, the au­dit states.

DIS­COMS MADE MONEY FROM ME­TERS: CAG

Elec­tric­ity me­ters in Delhi homes could well cap­ture the re­al­ity of the na­tional cap­i­tal's pri­va­ti­za­tion of power dis­tri­bu­tion with the CAG au­dit point­ing to an ar­ray of anom­alies and ex­ag­ger­a­tions around th­ese hum­ble me­ters.

Fol­low­ing com­plaints from con­sumers, Delhi Elec­tric­ity Reg­u­la­tory Com­mis­sion (DERC) had formed a com­mit­tee in 2003 to ex­am­ine the qual­ity of me­ters. Based on the com­mit­tee's re­port, DERC di­rected dis­coms that me­ters man­u­fac­tured by TTL and Ely­mer should be re­placed on pri­or­ity . “How­ever, dis­coms could fully re­place th­ese me­ters only by 2010-11,“the au­dit re­port said.

The re­port also said gov­ern­ment schools, hos­pi­tals and other in­sti­tu­tions were over­charged by dis­coms.

How­ever, it is in the busi­ness of elec­tric­ity me­ters that sev­eral bizarre twists were seen. Only me­ters put to use and in­stalled at the con­sumers' premises should be in­cluded as fixed

as­sets (cap­i­tal­ized) on which dis­coms are al­lowed re­turns. The CAG au­dit found tha as on March 31, 2013, BRPL had cap­i­tal­ized 22.10 lakh me­ters while there were only 18.49 lakh con­sumers. The num­ber of con­sumers in­ti­mated by the com­pany to DERC dif­fered widely from the num­ber of con­sumers as per the billing data fur­nished to the au­dit.

Me­ters re­moved from con­sumers' premises are auc­tioned as scrap. In the list of dis­carded as­sets pro­duced to the au­dit by BRPL, it showed 9.96 lakh me­ters to have been dis­carded be­tween 2005-06 and 2011-12. How­ever, from the me­ter uti­liza­tion data, the au­dit found that 14.41 lakh me­ters were ac­tu­ally re­moved from the con­sumers' premises. There­fore, 4.45 lakh me­ters val­ued at around Rs 58.39 crore re­mained un­ac­counted for.

In BYPL, 16.94 lakh me­ters were cap­i­tal­ized while the num­ber of con­sumers was only 12.89 lakh.

TPDDL showed that 11.93 lakh new me­ters were in­stalled dur­ing be­tween 200809 and 2012-13 while only 3.83 lakh new con­sumers were added dur­ing this pe­riod.

The au­dit said in BYPL, an un­war­ranted bur­den of Rs 65.24 crore was placed on con­sumers be­cause of the dis­crep­ancy in me­ters. In BRPL, the un­wanted bur­den on con­sumers be­cause of me­ters was Rs 63.06 crore.

The au­dit found that the cost of re­plac­ing me­ters within the war­ranty pe­riod was borne by the dis­coms and cap­i­tal­ized. For ex­am­ple, Rs 19.33 crore was borne by BRPL, in­stead of the man­u­fac­tur­ers, and passed on to the con­sumers. Sim­i­larly, BYPL re­placed 1.12 lakh de­fec­tive me­ters and the cost of Rs 12.09 crore was not re­cov­ered from the man­u­fac­turer but passed on to con­sumers. Sim­i­larly, TPDDL placed a bur­den of Rs 27.54 crore on con­sumers.

The au­dit found that the dis­coms de­layed in­stal­la­tion of KVA me­ters which were meant to im­prove consumption ef­fi­ciency.

There was also wide­spread is­suance of bill be­fore the no­ti­fied billing pe­riod.“in 2011-12 and 2012-13, it was found that the dis­coms is­sued 27% of their bills in vi­o­la­tion of the no­ti­fied billing cy­cle, caus­ing in­con­ve­nience to the con­sumer,” the au­dit said.

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