RAKESH NATH, J. - (1.) THIS appeal has been filed by Noida ower Company Ltd. against the order dated 14.10.2010 passed by the Uttar Pradesh Electricity Regulatory Commission ("State Commission") deciding the Annual Revenue Requirement and tariff for the FY 2009 -10 and true -up of the financials for the FYs 2006 -07, 2007 -08 and 2008 -09.
(2.) THE appellant is a distribution licensee undertaking distribution and supply of electricity in Greater Noida area. The State Commission is the respondent. The appellant's grievance is that a substantial part of its claim of revenue requirements for the FY 2009 -10 and actual expenses incurred during the FYs 2006 -07 to 2008 -09 have not been allowed by the State Commission.
(3.) THE brief facts of the case are as under: 3.1 On 26.6.2007, the State Commission determined the Aggregate Revenue Requirement ("ARR") and tariff of the appellant for the FY 2006 -07 and true up of financials for the FYs 2004 -05 and 2005 -06. Further, the State Commission on 01.09.2008 determined the ARR and tariff of the appellant for the FY 2007 -08 and the FY 2008 -09 and true up of the FY 2006 -07. 3.2 On 28.11.2008, the appellant filed a petition being No. 590 of 2008 before the State Commission seeking approval for its ARR and tariff for the FY 2009 -10 and true up for the previous years. 3.3 The State Commission vide its order dated 14.10.2010 determined the ARR and tariff for FY 2009 -10 and true up of financials for the FYs 2006 -07 to 2008 -09. 3.4 Aggrieved by the order dated 14.10.2010 of the State Commission, the appellant has filed this Appeal. Ld. Counsel for the appellant has raised the following issues: (i) Assumption of increased sales revenue for FY 2009 - 10: The State Commission has applied to the appellant same retail tariff as determined for the four state owned distribution licensees vide a separate order dated 31.03.2010. The said tariff was made applicable to the appellant with effect from 15.04.2010 as per the implementation of the same retail supply tariff throughout the State. Thus, the appellant raised bills on the consumers as per the then prevailing tariff during the entire tariff period from 01.04.2009 to 31.03.2010. However, the State Commission has determined the revenue from sale of power of the appellant for the FY 2009 -10 at the tariff determined in the impugned order thus increasing the assumption of sales revenue by Rs.39.83 crores. Accordingly, the appellant is entitled to the correction of sales revenue along with carrying cost thereon, till the appellant is able to recover the same in full. (ii) Assumption of higher realization per kwh sold for the FY 2009 -10: The State Commission while computing revenue from existing tariff had arbitrarily assumed higher weighted average realization @ Rs.4.48 per kwh as against the actual weighted average realization @ Rs.4.25 per kwh till January, 2010 submitted vide the appellant's letter dated 16.04.2010. The arbitrary over estimation by the State Commission has resulted in assumption of increased sales revenue of Rs.13.49 crore as per the audited annual accounts for FY 2009 -10. The appellant is entitled to correction in this regard along with the carrying cost. (iii) Assumption of lower sales volume and corresponding lower power purchase quantum for the FY 2009 -10: The State Commission assumed lower sales volumes of 612.83 Million Units ("MUs) only as against 645.98 MU which should have been worked out as per the methodology adopted by the State Commission. The actual quantum of power sold as per the audited accounts is 650.79 MUs. This has resulted in a shortfall of Rs.17.65 crore in the ARR, the cost of which needs to be allowed along with the carrying cost. (iv) Distribution losses for FY the 2007 -08 and the FY 2009 -10: In the impugned order, the State Commission while truing up for the FY 2007 -08, adopted the distribution losses at 7.85%, as provisionally approved vide order dated 01.09.2008. In the subsequent FY 2008 -09, the State Commission retained the loss level at 8%. The loss level for the FY 2007 -08 was not fixed by the State Commission as a loss reduction trajectory and was only a provisional figure and was required to be adjusted based on the audited data available at the time of truing up. In the FY 2009 -10 also the State Commission has reduced the distribution loss target from 8% fixed for the FY 2008 -09 to 7.75% without appreciating that the relevant financial year was already over and there was no occasion for the appellant to reduce the distribution loss. The total distribution loss of the appellant at 8% is minimum amongst the distribution licensee in the contrary and the reduction in the losses lower than 8% cannot be a norm on the ground that the licensee should any way progressively reduce the loss. Any achievement of reduction below 8% should be allowed as an efficiency gain and not fixed as a benchmark for the subsequent year. The appellant is being penalized for being efficient while other licensees in the State are being allowed much higher loss level by the State Commission. (v) Disallowance of power purchase at marginal cost for the FYs 2006 -07, 2007 -08 and 2009 -10: The disallowance of power purchase units on account of non -achievement of the distribution loss target should be at pooled power purchase cost instead of the highest marginal cost. (vi) Transmission charges for the FY 2009 -10: The State Commission has allowed only 12.15 crore as transmission charges as against 13.57 crore actually paid by the appellant to outside entities such as POWER GRID and the State transmission licensee, as per the audited accounts. (vii) Operation and Maintenance expenses for FY 2007 -08, FY 2008 -09 and FY 2008 -09: The appellant has raised the following issues in respect of O&M expenses: (a) The State Commission instead of applying the Compounded Annual Growth Rate (CAGR) for each element of Operation and Maintenance ('O&M') expenses viz. Employees expenses, Administrative and General ('A&G') expenses and Repair and Maintenance ('R&M') expenses separately has proceeded on the consolidated CAGR. The CAGR should have been applied individually to each component of the O&M expenses in accordance with the Tariff Regulations. (b) The State Commission has not followed its regulations for the incremental O&M expenses in true up of the financials for the FY 2008 -09. (c) In the FY 2009 -10, the State Commission has wrongly deducted Rs.57 Lacs towards capitalization of O&M expenses in the FY 2009 - 10 even though O&M expenses for the base year i.e. FY 2007 -08 had been determined by the State Commission after deducting expenses computed in that year on the fixed assets. (d) The State Commission while determining the O&M expenses for FY 2009 -10 ought to have considered the statutory and other relevant expenses, viz., fees paid to the State Commission, advertising expenses for initiating competitive bidding for procurement of power, expenses incurred on demand side management, functioning of Consumer Grievance Redressal Forum etc., in addition to the normative O&M expenses for day to day running and maintenance of the assets. (viii) Servicing of Regulatory Asset for the FYs 2007 -08, 2008 -09 and 2009 -10: The State commission has been leaving a revenue gap even on the admitted and allowed revenue requirements after due prudence check. Such revenue gap is treated as Regulatory Asset to be adjusted in future tariff so as to avoid immediate tariff shock. However, the State Commission has not been providing the financing cost of such revenue gap/regulatory asset. The State Commission also wrongly considered availability of surplus fund of Rs.19.64 crore determined in its tariff order dated 01.09.2008 recoverable from UPPCL, whereas the appellant was restrained from recovering the same from UPPCL. (ix) Interest and Finance charges for FYs 2007 -08, 2008 - 09 and 2009 -10: The State Commission has not allowed the financing charges such as processing fee, bank charges and other service charges which were incurred by the appellant for obtaining loans to fund the capital expenditure, regulatory assets and working capital requirements, in contravention to the Tariff Regulations. (x) Interest on working capital for the FYs 2007 -08, 2008 -09 and 2009 -10: The appellant has deposited an amount of Rs.11.28 crore as security deposit with UPPCL. The State Commission has wrongly considered the availability of aforesaid amount towards working capital requirements thereby reducing the working capital loan requirements, contrary to its earlier tariff orders dated 26.06.2007 and 01.09.2008. (xi) Efficiency gain on swapping of loan for the FY 2009 - 10: The State Commission has passed on the entire benefit of loan swapping to the consumers without giving any benefit for the appellant, contrary to its Tariff Regulation: (xii) Bad debts: The State Commission has not taken into account the non -recovery of electricity duty from the consumers towards bad debts. For the FY 2009 -10, the State Commission has wrongly allowed bad debts @ 0.69% of net sales instead of 0.75% of gross sales including electricity duty. (xiii) Contingency Reserve for the FYs 2007 -08, 2008 -09 and 2009 -10: The State Commission has not allowed the contingency reserve during FY 2009 -10 on the ground of huge revenue gap. Even in the FYs 2007 -08 and 2008 -09 the State Commission has arbitrarily assumed hybrid approach for applying contingency reserves and approved the same at 0.25% of opening Gross Fixed Assets instead of 0.5% as allowed in the Tariff Regulations. (xiv) Capitalization of interest for the FYs 2007 -08, 2008 - 09 and 2009 -10: As per Accounting Standard AS - 16, the interest on borrowing of the funds for capital projects which get completed within one year cannot be capitalized and has to be charged as revenue expenditure in the profit and loss account. Despite the above, the State Commission has wrongly directed capitalization of such interest during construction, which is contrary to the Tariff Regulations. (xv) Consultancy fee taken as non -tariff income for the FY 2006 -07: The State Commission has wrongly taken into account the consultancy fees earned by the appellant to reduce the revenue requirements of the appellant. (xvi) Disallowance of 0.5% on the loans for the FY 2006 - 07: The State Commission in the FY 2006 -07 has not allowed 0.5% on the loans availed as per the provisions of the Electricity (Supply) Act, 1948 despite the fact that Sixth Schedule to the 1948 Act was made applicable by the State Commission during the said period. (xvii)Capital expenditure for the FY 2007 -08: The State Commission has arbitrarily approved the capital expenditure of Rs.88.89 crore as against Rs.89.07 crore on the basis of actual audited accounts. (xviii) Tax for the FY 2009 -10: In the FY 2009 -10 the State Commission has erred in allowing taxes at Rs.2.48 crore instead of Rs.5.13 crore as per the audited accounts. ;