before the maharashtra electricity … 58 42/order-9 of 2017... · · 2017-11-22merc order –...

MERC Order – Case No.9 of 2017 of 23

Before the

MAHARASHTRA ELECTRICITY REGULATORY COMMISSION

World Trade Centre, Centre No.1, 13th Floor, Cuffe Parade, Mumbai 400005

Tel. 022 22163964/65/69 Fax 22163976

Email: [email protected]

Website: www.mercindia.org.in/www.merc.gov.in

Case No. 9 of 2017

In the matter of

Petition of Reliance Infrastructure Ltd. (Distribution) for relaxation or modification of

certain provisions the Multi-Year Tariff Regulations, 2015, and re-determination of

O&M Expenses accordingly

Coram

Shri.Azeez M. Khan, Member

Shri. Deepak Lad, Member

Reliance Infrastructure Limited (Distribution) …Petitioner

Appearance

For the Petitioner: Shri. Vivek Mishra (Rep.)

For Authorised Consumer Representative: Dr. Ashok Pendse, TBIA

ORDER

Date: 22 November, 2017

M/s Reliance Infrastructure Ltd. (Distribution)(RInfra-D) has filed a Petition on 30

December, 2016 citing Regulations 101 and 102 of the MERC (Multi Year Tariff (MYT))

Regulations, (‘MYT Regulations’), 2015 for amendment or removal of difficulty in

implementing Regulations 72 and 81 relating to Operation and Maintenance (O&M)

expenses

2. The prayers of RInfra-Dare as follows:-

a) “To admit the present petition under Regulations 101 and 102 of MYT Regulations,

2015;

b) To modify/amend the norms for O&M expenses for distribution wires and supply

businesses in the manner prayed for and / or remove the difficulty in implementing the

said Regulations 72 and 81 of MYT Regulations 2015;

c) To decide on the matter expeditiously, so that the revisions to the norms, if any can be

effected before the date of filing of Mid-Term Review Petition under the MYT

Regulations, 2015;…”

http://www.mercindia.org.in/www.merc.gov.in


3. In its Petition, RInfra-D has stated as follows:

3.1. The present Petition is filed for amendment of the MYT Regulations, 2015 relating to

O&M expenses for the Wires Business and the Supply Business i.e., Regulations 72

and 81, respectively, and removal of difficulty in implementing those Regulations.

3.2. The facts of the matter are explained below:

a) The MYT Regulations, 2011 were applicable for the 2nd MYT Control Period (FY

2012-13 to FY 2015-16). Regulations 78.4.1 and Regulation 92.7.1 specified the

norms for O&M expenses for the Wires Business and the Supply Business,

respectively. The norms for Wires Business were made on the basis of energy

wheeled (kWh), number of consumers of the Wires Business and % of opening Gross

Fixed Assets of the Wires Business. The norms for the Supply Business were made on

the basis of energy sold (kWh), number of consumers of the Supply Business and %

of opening GFA of the Supply Business.

b) RInfra-D submitted its MYT Petition for approval of Aggregate Revenue

Requirement (ARR) and Tariff for the 2nd MYT Control Period (FY 2012-13 to FY

2015-16) in Case No. 9 of 2013). In that Petition, RInfra-D had submitted that, based

on the norms of the MYT Regulations, 2011, the allowable O&M expenses for FY

2012-13 were lower than the O&M expenses for FY 2011-12 approved vide Order

dated 15 June 2012 in Case No. 180 of 2012.Due to the inadequacy of the norms,

RInfra-D proposed O&M expenses for the 2nd Control Period on the basis of the

estimated expenses for FY 2012-13.

c) In its MYT Order in Case No. 9 of 2013,the Commission accepted the contentions of

RInfra-D and approved the O&M expenses for the 2nd Control Period based on the

actual O&M expenses for FY 2012-13 and not on the basis of the norms under the

MYT Regulations, 2011, by invoking Regulation 100 (‘Power to Remove

Difficulty’):

“3.12.5.1 The Commission accepts RInfra-D contentions that the O&M

expenses in subsequent years cannot be approved at levels lower than the

approved values of the past years. Although, the Commission is of the view

that licensee should bring enhanced productivity in its operations and

consequently should induce reduction in O&M expenses for controllable

factors, however the increase on account of uncontrollable factors like wage

revision of the past period and inflation, cannot be done away with.

3.12.5.2 The Commission notes the submissions of RInfra-D that it is still

carrying out a number of its usual business activities for change-over

consumers, which are as under:

Regular monthly meter reading of change-over consumers to validate the

consumption data being shared by Tata Power Company as RInfra-D is


responsible for maintaining the distribution system losses. RInfra-D contended

that the migrated consumers are required to pay in kind only normative

distribution system losses and not the actual.

Meter replacement during JointMeter Reading (JMR), if consumer wants SDL

(Supply Distribution Licensee) meter.

Accompanying SDL representative for recovery of arrears and disconnect the

supply if TPC-D dues are not paid by the change-over consumers;

Accompanying SDL representatives for on-site activities such as meter testing,

meter replacement, consumer complaints related to meter/metering equipment,

etc.;

Continued (and increased) vigilance efforts for change-over consumers, as

SDL is unaffected by such theft as its losses are fixed at normative level which not

even include commercial losses including theft of electricity;

Follow-up activities such as monitoring and improvement of power factor, etc.

for change-over consumers, RInfra-D added that while poor PF of the change-

over consumers overload the distribution of WDL, however it is SDL who retains

PF surcharge recovered from the change-over consumers

Coordinating with SDL for jobs such as service shifting, load enhancement,

etc. such as monitoring and power factor improvement for change-over

consumers, etc.

3.12.5.3 The Commission observes that the assumption while framing

Regulations was that there would be reduction in O&M cost owing the

consumers switching over to TPC-D and it will in turn lead to optimisation of

O&M Cost.

3.12.5.4 The Regulation 100 of the part K of the MERC MYT Regulations,

2011 vests the Commission with the power to remove difficulties. The

Regulation 100 is reproduced hereunder:

“100 Power to remove difficulties

If any difficulty arises in giving effect to the provisions of these

Regulations, the Commission may, by general or specific order, make

such provisions not inconsistent with the provisions of the Act, as may

appear to be necessary for removing the difficulty.

3.12.5.5 The Commission exercising its power as provided under Regulation

100 of the MERC (MYT) Regulations 2011 relaxes the O&M norms for

RInfra-D provided under Regulation 78.4.1 and Regulation 92.7.1.

3.12.5.6 RInfra-D in its reply to data gaps has submitted the actual O&M

expenses for FY 2012-13 and certified Reconciliation statement and also

submitted following justification to increase in O&M expenses:

Particulars FY 10-11 FY 11-12 FY 12-13 Average Growth

ratefor FY 12-13

Actuals as

per ARR 388.5 427.04 592.49


Wage

Revision

Impact

32 52 (84)

Total 420.5 479.04 508.49 6.15%

Particulars FY 10-11 FY 11-12 FY 12-13 Average Growth

ratefor FY 12-13

Actuals as

per ARR 186.28 167.01 225.07

Wage

Revision

Impact

16.38 11.25 (27.63)

Total 202.66 178.26 197.44 6.83%

3.12.5.7 RInfra-D also submitted the A&G expenses for FY 2012-13 as Rs

153.93 crore.

3.12.5.8 The Commission for the purpose of approving O&M cost has

considered the actuals of FY 2012-13 and escalation rates of 6.15%, 6.83%

for employee expenses and R&M, respectively, based on the average growth

rate submitted by RInfra-D in the reply to data gaps mentioned above. The

Commission has computed a escalation rate of A&G expenses based on 60%

weightage of growth rate of employee expenses (6.15%) and 40% weightage

of growth rate of R&M expenses (6.83%). The Commission has not considered

wage revision impact of Rs 27.63 crore on R&M expenses as submitted by

RInfra-D, as RInfra-D has not substantiated its claim. The Commission directs

RInfra-D to submit justification of the above mentioned wage revision impact

with proper justification in the next tariff determination process for the

consideration of the Commission, subject to prudence check. The Commission

has applied same ratio for allocation to wires and supply business as

submitted by RInfra-D and reduced SCADA charges from RInfra-T as

submitted by RInfra-D in its Petition.

3.12.5.9 The O&M expenses approved by the Commission are as under:

Table 97: O&M Expenses approved by the Commission (Rs crore)

Particulars FY 12-13 FY 13-14 FY 14-15 FY 15-16

Total O&M (Wires

+Supply) 942.63 913.17 971.16 1032.86

Wires Business 636.48 611.41 649.01 688.95

Supply Business 306.15 301.77 322.16 343.91

”

d) RInfra-D filed its Mid-Term Review (MTR) Petition in Case No. 4 of 2015. In its

Order dated 26 June, 2015 (‘MTR Order’), the Commission trued up the O&M

expenses for FY 2012-13 and FY 2013-14 for the Wires and Supply Business as

below:

Particulars / (Rs. crore) FY 12-13 FY 13-14

Employee Expense 592.49 554.50

A&G Expense 153.93 166.94


e) The Commission issued the Draft MYT Regulations, 2015 in September, 2015 for the

3rd Control Period (FY 2016-17 to FY 2019-20) and invited public comments. The

Draft Regulations had specified the norms for O&M expenses for Wires Business on

the basis of energy wheeled (kWh), No. of consumers of Wires Business and % of

GFA of Wires Business. Similarly, the norms for Supply Business were specified on

the basis of energy sold (kWh), No. of consumers of Supply Business and % of GFA

of Supply Business. In other words, the norms for O&M expenses for the 3rd Control

Period were made on the basis of the same business parameters as used in the MYT

Regulations, 2011. Further, the norms were escalated at 5% for each year of the

3rd

Control Period. This meant that the O&M expenses were linked with both business

parameters and inflation.

f) In its comments on the Draft MYT Regulations, 2015,RInfra-D commented on

various aspects of the O&M norms proposed. RInfra-D principally supported the

concept that O&M expenses should be linked to business parameters and inflation,

while suggesting certain changes to the norms to better reflect the expense drivers.

RInfra-D also suggested that the adhoc escalation factor of 5% proposed for

escalating the base norms in the draft Regulations should be replaced with a factor

representing actual inflation.

g) The Commission notified the final MYT Regulations, 2015 on 8 December, 2015.

Regulations 72 and 81 contained the methodology for approval of O&M expenses for

each year of the Control Period for Wires Business and Supply Business, respectively,

which was vastly different from that proposed in the Draft Regulations on which the

stake-holders had submitted their comments. The O&M norms in the final MYT

Regulations are simply based on a composite inflation index including 40%

Consumer Price Index (Industrial Workers) (CPI) and 60% Wholesale Price

Index(WPI) reduced by an efficiency factor of 1%, and have no linkage to business

parameters. The final MYT Regulations, 2015 were not issued along with any

Statement of Reasons (SoR) and so it is not possible to determine what view the

Commission took on the comments received on this issue that prompted such a drastic

change in approach.Regulation 72 of the final MYT Regulations, 2015 is reproduced

below:

“72 Operation and Maintenance Expenses

72.1 The Operation and Maintenance expenses for the Distribution Wires

Business shall be computed in accordance with this Regulation.

72.2 The Operation and Maintenance expenses shall be derived on the basis of

the average of the Trued-up Operation and Maintenance expenses after

adding/deducting the share of efficiency gains/losses, for the three years

R&M Expense 225.07 203.66

O&M Expense 971.49 925.10


ending March 31, 2015, excluding abnormal Operation and Maintenance

expenses, if any, subject to prudence check by the Commission.

72.3 The average of such Operation and Maintenance expenses shall be

considered as Operation and Maintenance expenses for the year ended March

31, 2014, and shall be escalated at the escalation rate of 5.72% to arrive at

the Operation and Maintenance expenses for the base year commencing April

1, 2015.

72.4 The O&M expenses for each subsequent year shall be determined by

escalating the base expenses determined above for FY 2015-16, at the

inflation factor considering 60% weightage for the actual point to point

inflation over Wholesale Price Index numbers as per Office of Economic

Advisor of Government of India in the previous year and 40% weightage for

the actual Consumer Price Index for Industrial Workers (all India) as per

Labour Bureau, Government of India in the previous year, as reduced by an

efficiency factor of 1%, to arrive at permissible O&M expenses for each year

of the Control Period:

Provided that a different efficiency factor may be stipulated by the

Commission from time to time:

Provided further that at the time of Truing-up the O&M expenses for the

different years during the Control Period, the inflation factor considering 60%

weightage for the actual point to point inflation over Wholesale Price Index

numbers as per Office of Economic Advisor of Government of India in the

concerned Year and 40% weightage for the actual Consumer Price Index for

Industrial Workers (all India) as per Labour Bureau, Government of India in

the concerned year, as reduced by an efficiency factor of 1% or any other

value as may be stipulated by the Commission from time to time, shall be

considered.”

A similar provision for O&M expenses for Supply Business was provided in

Regulation 81 of the final MYT Regulations, 2015.

h) As per the final MYT Regulations, 2015, RInfra-D submitted its MYT Petition in

Case No. 34 of 2016.RInfra-D claimed the O&M expenses for the 3rd Control Period

based on the methodology specified in the MYT Regulations, 2015, albeit with a

change in the escalation factor. It sought certain modifications to the composite

inflation index, and D requested the Commission to approve the O&M expenses

projected by RInfra-D by invoking Regulation 102 of the MYT Regulations, 2015.

i) In its MYT Order dated 21 October, 2016, the Commission observed that, as per the

methodology ofthe final MYT Regulations, 2015, the escalation factor to be applied

for projecting O&M expenses from FY 2016-17 onwards worked out to (-)0.26%. The

Commission stated that it may not be appropriate to apply this negative inflation

factor for projecting the O&M Expenses onwards as some O&M expenses are likely

to increase on a year-to-year basis. Instead, the Commission considered the three-year

average variation in WPI and CPI to arrive at the inflation factor for projecting the


O&M Expenses from FY 2016-17 onwards. After deducting 1% efficiency factor as

per the Regulations, the escalation factor considered was 2.97%:

“Escalation Factor

Regulations 72.4 and 81.4 of MYT Regulations, 2015 specify as follows:

“The O&M expenses for each subsequent year shall be determined by




Advisor of Government of India in thepreviousyearand40% weightage for

the actual Consumer Price Index for Industrial Workers(all India)as per

Labour Bureau, Government of India in the previous year, as reduced by

an efficiency factor of 1%, to arrive at permissible O and M expenses for

each year of the Control Period.”

The escalation factor for the O&M Expenses from FY 2016-17 is to be worked out

on the inflation factor considering 60% and 40 % weightage for actual point to

point WPI and CPI, respectively, in the previous year, reduced by an efficiency

factor of 1%.

The Commission has analysed the WPI and CPI data for the previous year FY

2015-16. By applying 60% weightage to WPI and 40% weightage to CPI for FY

2015-16, the escalation rate works out to 0.74%. After applying the efficiency

factor of 1%, the escalation factor to be considered for projecting O&M expenses

from FY 2016-17 works out to -0.26%.

The Commission recognises the fact that the escalation rates based on actual

WPIand CPI have reduced significantly during last the 2 years as compared to

previous years. It may not be appropriate to apply this negative inflation factor for

projecting the O&M Expenses from FY 2016-17 onwards as some O&M expenses

are likely to increase on a year-to-year basis.

The Commission also notes that, for the O&M expenses for its Tariff Regulations,

2014, the CERC has considered the escalation rate computed based on 5-year

average WPI and CPI from FY 2008-09 to FY 2012-13 considering 60% and 40%

weightage, respectively, and compared these with the actual increase in O&M

expenses.

The inflation factor based on the provisions of the MYT Regulations, 2015 is

negative due to the reduction in WPI in FY 2015-16 with respect to FY 2014-15.

The Commission is of the view that it would be more appropriate at this stage to

consider the WPI and CPI variation over a period longer than a year so that wide

fluctuations in any one particular year are smoothened. Hence, the Commission

has considered the three-year average variation in WPI and CPI to arrive at the

inflation factor for projecting the O&M Expenses from FY 2016-17 onwards.

Based on this approach, the inflation factor giving 60% and 40% weightage to

WPI and CPI, respectively, works out to 3.97%.After applying the efficiency

factor of 1%, the escalation factor to be considered for projecting O&M expenses

from FY 2016-17 to FY 2019-20 would be 2.97%.


In view of the above, and in exercise of its powers under Regulation 102 of the

MYT Regulations, 2015 to remove difficulties, has computed the O&M Expenses

for FY 2016-17 to FY 2019-20 with an escalation factor of 2.97% considering the

three-year instead of one-year average variation in WPI and CPI.

Accordingly, the Commission has approved the O&M Expenses for the

3rdControl Period as shown in the following Table:

Table 6-60: O&M Expenses for FY 2016-17 to FY 2019-20 as approved by

Commission (Rs. crore)

Particular

s

FY 16-17 FY 17-18 FY 18-19 FY 19-20

RInfra

-D

Petitio

n

Approve

d

RInfra

-D

Petitio

n

Approve

d

RInfra

-D

Petitio

n

Approve

d

RInfra

-D

Petitio

n

Approve

d

Wires

Business

745.22 702.94 800.69 724.05 859.64 745.35 922.95 767.30

Supply

Business

401.55 348.86 434.08 359.21 465.97 369.87 501.23 380.84”

The total O&M expenses claimed by RInfra-D in its MYT Petition and that allowed by the

Commission for each year of the Control Period is summarized below:

(Rs. crore)

Particulars / (Rs.

crore) FY 15-16 FY 16-17 FY 17-18 FY 18-19 FY 19-20

Claimed in

Petition (net of

DSM expenses)

1067 1142 1230 1323 1424

Allowed in

Order 1019 1052 1083 1115 1148

Shortfall 48 90 147 208 276

Cumulative

shortfall 138 285 493 769

3.3. As can be seen from the above, the O&M expenses allowed by the Commission for

each year of the 3rd

Control Period are grossly insufficient considering the current

level of expenses (for FY 2015-16). In fact, the expenses permitted for FY 2016-17

are lower than the actual expenses of FY 2015-16 (Rs. 1067 crore).

3.4. The O&M expenses allowed by theCommission up to FY 2015-16and thereafter from

FY 2016-17 onwards till FY 2019-20 are given below:

(Rs. crore)

Particulars

FY

11

FY

12 FY 13 FY 14 FY 15

FY

16

FY

17

FY

18

FY

19 FY 20

Approved

O&M

Expenses

754 797 860 925 980 1019 1052 1083 1115 1148


Note 1: O&M Expenses for FY 2010-11 and FY 2011-12 approved in Order dated 4

April 2013 in Case No. 124 of 2012. (Arrears pertaining to FY 2010-11 and FY 2011-

12 paid in FY 2012-13 are added to the O&M expenses for FY 2010-11 and FY 2011-

12 for normalization)

Note 2: O&M Expenses for FY 2012-13 and FY 2013-14 approved in Order dated 26

June 2015 in Case No. 4 of 2015. (O&M expenses FY 2012-13 shown above is net of

arrears for past period)

Note 3: O&M Expenses from FY 2014-15 to FY 2019-20 taken in the above table as

per MYT Order dated 21October 2016 in Case No. 34 of 2016.

The above Table shows that, on an average, a 7% increase in O&M expenses was

allowed to RInfra-D in the previous Control Period till FY 14-15 (upto where the final

true-up is carried out). However, under the MYT Regulations, 2015, only a 3%

increase is now being permitted for the 3rd Control Period from FY 16-17 onwards.

This means that, effectively, the Commission now requires the O&M expenses of

RInfra-D to be brought down by4% year on year.

3.5. The prescription of 1% reduction on account of efficiency in the MYT Regulations is

actually a misnomer. The actual reduction to be effected by RInfra-D is much more

than that because the actual expenses of FY 2015-16 (as submitted to the Commission

during the MYT process) are more than what the Commission has used as the Base.

The Commission has derived a Base expense figure for FY 2015-16 of Rs. 1030 crore

(for allowing expenses from FY 2016-17 onwards), whereas the actual expenses for

FY 2015-16 are Rs. 1067 crore. Now, as per the MYT Order, the approved expenses

for FY 2016-17 are about Rs. 1061 crore (after netting off Demand-Side Management

Expenses (DSM) expenses and adding back the RNA Office rental). This means that

the allowance for FY 2016-17 is even lower than that what it actually incurred in FY

2015-16. Even if it is assumed that expenses, in the natural course, increase only by

the approved inflation rate, i.e. 3.97%, RInfra-D will have to bring in efficiency

reduction even greater than the allowed inflation to limit the costs to the approved

level of Rs. 1061 crore. The efficiency factor would become close to 4% (1067 x (1 +

3.97% - X) = 1061), where X4%.

3.6. The above analysis shows the effect of reduced Base expenses (FY 2015-16) on

O&M cost. There will be a further impact due to the difference between the normal

year on year escalation in O&M cost of RInfra-D and the escalation considered in the

MYT Order. In its MYT Petition, RInfra-D had considered an escalation of 7.34%

year on year, as against which the permitted escalation is only 3.97%. The reduction

then required to bring it to the approved level of Rs. 1061 crore means an Efficiency

Factor of about 8% (1067 x (1+7.34% - X) = 1061), i.e. X8% in FY 2016-17 alone.

This will get compounded each year thereafter.

3.7. In view of the insufficient O&M expenses allowable toRInfra-D as per the final MYT

Regulations, 2015, amendment is sought to Regulations 72 and 81 by invokingthe

Commission’s powers under Regulations 101 and 102.


Submissions for modification of MYT Regulations with respect to O&M cost:

A. Methodology for allowance of O&M Expense:

3.8. Regulation 72.2 and 72.3 of thefinal MYT Regulations, 2015 are reproduced below:

“72.2 The Operation and Maintenance expenses shall be derived on the basis

of the average of the Trued-up Operation and Maintenance expenses after

adding/deducting the share of efficiency gains/losses, for the years ending

March 31, 2015, excluding abnormal Operations and Maintenance expenses,

if any, subject to prudence check by the Commission.





1, 2015.”

3.9. The O&M expense allowance, as per the new MYT Regulations, is linked to inflation

only and not to business parameters. In this regard, RInfra-D submitsas under:

a) Electricity distribution is an expanding business. Every year, the business adds

new customers, new lines, new sub-stations and other infrastructure. O&M

expenses of the business in any given year are a function of new employee

recruitment, material and labour required for repairs and maintenance and

administrative overheads. These are, in turn, dependent on how much the business

grows in terms of adding physical infrastructure and customers. For example,

increase in the amount of bills to be printed and distributed is directly proportional

to increase in the number of customers, increase in the number of customers also

prompts increase in number of employees or increase in number of man-hours per

employee, which affects expenses such as overtime. Similarly, increase in

preventive maintenance activities, fault repairs, Re-Instatement (RI) charges, etc.

is directly dependent on the number of lines, sub-stations and other infrastructure

commissioned. Many other administrative and maintenance overheads also

increase with increase in the number of premises such as receiving stations, new

collection centers, etc.

b) The Commission has itself prescribed a growth-linked expense formula for the

Transmission Licensees, where growth is measured in terms of ckt-km of line

length and number of sub-station bays. The normative O&M expenses for

Transmission Licensees provides for expenses linked to these business parameters

as well an escalation factor of 5% year on year. Hence, even if there is no growth

in ckt-km of line length or number of bays, there will still be, at the minimum, an

increase of 5% in the expenses, permitted as per the MYT Regulations. If

Transmission Licensees are allowed business growth-linked O&M cost, in

addition to 5% escalation, Distribution Licensees should also be allowed business


growth-linked O&M cost because the distribution business is also an expanding

business and there are growth-dependent expenses in the distribution business as

well, as explained above.

c) Among all the parameters of business growth, increase in the number of

customers is the one that affects O&M expenses the most, because such increase

affects employee costs in terms of hiring as well as man-hours, customer servicing

costs, overheads to support additional infrastructure required for handling more

customers, etc. Therefore, employee expenses and Administration and General

(A&G) expenses should be linked to the number of customers. On the other hand,

network increase – measured in physical terms or financial terms (GFA) – should

be the chosen growth-linked driver for Repairs and Maintenance (R&M) expenses

as they are directly asset-related costs.

d) Other possible growth parameters could be physical network parameters such as

line length, sub-stations, etc.; however, this could pose a problem of

standardization across the Distribution Licensees because of different cost

structures, maintenance practices, terrain, network topology, under-ground vs.

overhead network, rural vs. urban area mix affecting feeder lengths and density,

etc. Moreover, availability of reliable data of line lengths, sub-stations,

transformers, etc. may also be an issue. Hence, in view of ease of implementation,

availability of data and to ensure consistency with the regulatory framework in the

previous regime (2ndControl Period Regulations), the number of customers and

GFA may be considered as the growth parameters for indexation of O&M cost.

e) In the previous Control Period and as also suggested in the draft MYT

Regulations, the energy wheeled / sold was considered as one of the growth-

linked parameters. The energy wheeled / sold is not really an expense driver,

because the same O&M expenses are incurred to serve a consumer whether or not

the customer consumes energy. In fact, in most Cost-to-Serve models, only the

power purchase expenses are considered energy-related expenses.

f) Another difficulty that may arise with O&M expenses linked to energy wheeled is

that the expenses calculated as per norms may turn out to be significantly low or

high in case of unexpected reduction or growth in consumption of consumers. For

example, the consumption of both RInfra-D’s own consumers and change-over

consumers have reduced significantly in FY 2016-17 compared to the sales

approved in RInfra-D’slast MYT Order and also compared to the actual sales of

FY 2015-16. Such unexpected reduction in sales would unduly suppress the

allowable O&M cost even when no actual reduction in expenses would take place.

B. Determination of Base O&M expenses:


3.10. The MYT Regulations provide the following with regard to deriving Base O&M

expenses:

“72.2 The Operation and Maintenance expenses shall be derived on the basis

of the average of the Trued-up Operation and Maintenance expenses after

adding/deducting the share of efficiency gains/losses, for the years ending

March 31, 2015, excluding abnormal Operations and Maintenance expenses,

if any, subject to prudence check by the Commission.





1, 2015.”

3.11. Thus, as per the MYT Regulations, 2015, the Base expenses of FY 2015-16 are

derived from the adjusted actuals of FY 2012-13 to FY 2014-15. Further, the

Regulations do not provide for any adjustment in the norms at the time of true-up of

the first year of the 3rd

Control Period so as to recognize the actuals of FY 2015-16. In

this context.

3.12. In this regard, for the purpose of computing the norms, the actual cost of the previous

Control Period should be recognized and not the approved cost (trued-up plus or

minus efficiency gains or losses as provided in the MYT Regulations). If the approved

cost (after adjusting for efficiency gains / losses) is recognized, the Base expenses

would already be factoring in efficiency savings in case of losses and efficiency

reward in case of gains. It would be incorrect to suppress or increase Base expenses to

the extent of efficiency loss or gains, respectively, and then provide for a further

efficiency factor during the Control Period. If an efficiency factor or target is provided

for the Control Period, it is imperative that the Base expenses are recognized at actual

levels and not at the approved level.

3.13. The MYT Regulations, 2015 consider the average of the 3 year trued up O&M

expenses of FY 2012-13, FY 2013-14 and FY 2014-15 after adding or deducting the

share of efficiency gains or losses, based on which O&M expenses for each year of

the 3rd

Control Period is allowed. While the MYT Regulations provide for a correction

for inflation at the time of true-up, there is no corresponding provision for correction

of Base O&M expenses at such time. As the Base O&M expenses forFY 2015-16 are

derived at the time of making projections for the MYT Control Period, the

Regulations should necessarily provide for correction of Base expenses to actuals of

FY 2015-16 at the time of true-up. Even the Tariff Policy, 2016 (and the earlier Tariff

Policy, 2006) provides that actual costs should form the basis of projections at the

start of the Control Period:

“8.1… 5) At the beginning of the control period when the “actual” costs form

the basis for future projections, there may be a large uncovered gap between


required tariffs and the tariffs that are presently applicable. This gap should

be fully met through tariff charges and through alternative means that could

inter-alia include financial restructuring and transition financing.”

3.14. If the correction for actual costs of the Base Year is not made at the time of true-up,

the normative O&M cost would be unduly suppressed and the reduction required

through efficiency measures would be very high.

3.15. Not linking the norms to the O&M expenses for FY 15-16 will have a negative

bearing on the efficiency factor that RInfra-D is supposed to bring in as per the MYT

Regulations, 2015. The Distribution Licensee will institute efficiency measures to

reduce costs in FY 2016-17 and beyond only from the reference level of actuals of the

previous year, i.e. FY 2015-16. If the Base expenses happen to be lower than the

actuals, then even after achieving 1% efficiency improvement as required in the

Regulations, the Licensee will be way short of the target expenses (as has also been

shown in the analysis above, that the actual Efficiency Factor to be achieved becomes

4%). Similarly, if the Base expenses as derived as per the Regulations are more than

the actuals of FY 2015-16 and not adjusted at the time of true-up of FY 2015-16, the

Licensee would be able to meet its target cost, with little or no effort towards

efficiency improvement. Both of these situations are undesirable – in the former, the

target becomes unachievable and, in the latter, the target is, possibly, too relaxed.

C. Escalation Factor:

3.16. Regulation 72.4 of thefinal MYT Regulations, 2015 provides as follows with regard

to the escalation factor in O&M expenses:

“72.4 The O&M expenses for each subsequent year shall be determined by




Advisor of Government of India in the previous year and 40% weightage for

the actual Consumer Price Index for Industrial Workers (all India) as per

Labour Bureau, Government of India in the previous year, as reduced by an

efficiency factor of 1%, to arrive at permissible O&M expenses for each year

of the Control Period:

Provided that a different efficiency factor may be stipulated by the

Commission from time to time:

Provided further that at the time of Truing-up the O&M expenses for the

different years during the Control Period, the inflation factor considering 60%

weightage for the actual point to point inflation over Wholesale Price Index

numbers as per Office of Economic Advisor of Government of India in the

concerned Year and 40% weightage for the actual Consumer Price Index for

Industrial Workers (all India) as per Labour Bureau, Government of India in

the concerned year, as reduced by an efficiency factor of 1% or any other


value as may be stipulated by the Commission from time to time, shall be

considered.”

Thus, the MYT Regulations provide for a composite inflation index of 60%WPI

and 40%CPI to escalate the Base expenses. In this regard, RInfra-D makes the

following submissions.

3.17. In order to correctly reflect the effect of inflation on cost, the composite index used

for escalating O&M expenses needs to be aligned with the composition of such

expenses. In fact, the very reason it is called a composite index is because it is

expected to be based on the composition of individual elements of expenses.

Therefore, the composite inflation index is required to be different for different types

of businesses – Generation, Transmission and Distribution, reflecting the composition

of O&M expenses in these businesses. The distribution business, in particular, is more

manpower-centric, because it includes customer focused functions, viz. billing,

collection, meter reading, bill distribution, complaint handling, attending to

breakdowns. Further, the nature of the distribution projects is very different from

generation or, for that matter, transmission. In the distribution business, there are day

to day projects ongoing throughout the year for erection of sub-stations, cable laying,

upgradation, release of supply, etc., which are, again, manpower-centric and unlike in

generation and transmission.

3.18. Further the employee expenses of the Mumbai Distribution Licensees is expected to

be higher as the cost of living in Mumbai is the highest among all cities in India. The

amount required to maintain the same standard of living in other major cities of India

compared with the standard of living that can be maintained with Rs. 1.2 lakh per

month in Mumbai is shown in the Table below:

City Amount per month

Mumbai 1,20,000/-

Delhi 93,090/-

Bengaluru 84,819/-

Chennai 80,883/-

Kolkata 78,090/-

Hyderabad 71,200/-

Source: Numbeo.com

3.19. Within the Distribution business also, the break-up of manpower vs. non-manpower

cost is very different between Wires and Retail Supply businesses. In RInfra-D’s case,

in the Wires business, employee expense is a little less than 60% of the total O&M

expenses, whereas in the Supply business, it is more than 75%, mainly because retail

supply activities are mostly customer related and not asset related.

3.20. Therefore, while building in inflation in the expenses allowance and also correcting

for it at the time of true-up so as to pass on the changes of inflation on the customers,


it is important to first ensure that the composite inflation index is chosen in such

manner as to reflect the composition of O&M expenses.

3.21. Employee expenses, being manpower costs, will be driven largely by the CPI. The

wages of unionized cadre of employees are linked to Dearness Allowance (DA),

which, in turn is linked to CPI. The unionized cadre wages alone form 63% of total

employee cost. Similarly, the salaries of other employees are related to various factors

such as industry standards, cost of living, etc. where CPI again becomes the main

guiding principle. Even R&M expenses have a component of wages paid to contract

labour and, therefore, there is a component of manpower costs even in R&M

expenses. Similarly, A&G expenses are largely driven by both infrastructure growth

as well as growth of customers and, therefore, are affected by the growth in prices of

both material and services (cost of services is mostly man-hour based).

3.22. Therefore, the employee expenses may be linked only to the CPI, while the A&G and

R&M expenses may be linked to a composite inflation index comprising 60%WPI

and 40%CPI.

D. Efficiency factor:

3.23. As seen from the MYT Regulations, the escalation allowed in the O&M expenses is

reduced by an efficiency factor of 1% for each year of the Control Period.

3.24. The efficiency of the business lies in how much the business is able to mitigate the

effect of internal and external expense drivers on its expenses. In static businesses,

there are no growth linked expenses, but it is not so in businesses such as electricity

transmission and distribution, which add network and consumers every year. The

efficiency factor (1% currently) should provide the target of cost savings to the

Licensee, only after providing for all the drivers of expenses, including growth

drivers. Inflation, being an uncontrollable factor, as also recognized in the MYT

Regulations (since the Regulations provide for its correction at the time of true-up),

the efficiency factor for Distribution Licensees should ideally be worked out only

after permitting a similar growth-linked increase in the formula, because efficiency

would then represent the Licensee’s ability to contain its growth-based costs, through

efficiency measures such increase in labour productivity, cost reduction through value

engineering, outsourcing, etc.

3.25. 1% efficiency each year adds upto 4% for the four years of the Control Period.

Efficiency measures are not unlimited and, after a point, further efficiency may not be

achievable as all measures for efficiency would have been deployed. Therefore, while

the efficiency factor may be considered as 1% for the 3rd Control Period, it is

important that, at the time of the 4th Control Period, the efficiency factor, if any, is

selected based on a review of efficiency savings in the previous Control Period and

whether or not further efficiency is achievable.


Tariff Regulations / Orders in other States:

3.26. On the issue of O&M cost allowance, RInfra-D has studied the Tariff Regulations /

Orders of various other States, as presented in the Table below:

State Growth-linked escalation Inflation-linked

escalation

Efficiency

Factor

Uncontrollable

elements

allowed over

and above

norms

Andhra

Pradesh

Sources:

Tariff

Regulation

s, 2005

Wheeling

Tariff

Order FY

14-15 to

FY 18-19

1.Employee and A&G

Expenses allocated among

cost drivers in the proportion

below:

a. 20% to no. of consumers

b. 10% to no. of DTRs

c. 49% to no. of sub-stations

d. 21% to Ckt. Km

2. The average cost of each

cost driver is arrived for the

past 5 years FY 08-09 to FY

12-13 and this average cost

of cost driver is considered

for the middle of the five

years period i.e. FY 10-11

3. R&M cost @ 2.05% of

GFA

60% CPI + 40%

WPI escalation

used, worked out

as 8.40%.

Inflation rate of

8.40% used to

escalate Average

Cost of each

Cost driver from

FY 10-11 to FY

13-14 and

thereafter each

year FY 14-15 to

FY 18-19

No

Efficiency

Factor is

specified

Karnataka

Sources:

Tariff

Regulation

s, 2015

Order on

APR of FY

14-15 and

ARR and

Tariffs for

FY 16-17

to FY 18-

19

Consumer Growth rate has

been considered as the

growth-linked driver for the

whole of O&M cost

O&M Expenses for each year

of the Control Period

computed considering the

expenses reckoned for the

Base year excluding

uncontrollable employee cost

using formula:

(1+consumer growth rate +

inflation rate - efficiency

factor)*O&M Expense of

Base yr.

Consumer Growth rate is

derived based on projections

Inflation is

derived by

considering CPI

and WPI data for

last 12 years,

with a ratio

80:20

1%

Efficiency

Factor

specified

in ARR

Order of

FY 16-17

to FY 18-

19

Contribution

to pension and

gratuity, CPF

and leave

encashment

shall be

accounted

separately

based on

actual

valuation.

Employee cost

proposed to be

incurred on

account of

wage revision

and proposed

recruitments


at the time of ARR and trued-

up based on actual

during the

Control Period

shall be

factored in

separately as

additional

O&M

Expenses.

Rajasthan

Sources:

Tariff

Regulation

s, 2014

Tariff

Order

2016-17

Sales considered as Growth-

linked driver.

Fixed on Per unit basis for

the first year i.e. FY 2014-15

(Employee: 38 paisa per unit,

A&G 4 paisa per unit and

R&M: 8 paisa per unit)

Inflationary

escalation @

5.85% per

annum for each

year of the

Control Period

No

efficiency

factor

specified

Uttarakhan

d

Sources:

Tariff

Regulation

s, 2015

Tariff

Order FY

16-17

Growth linked drivers:

R&M – Indexation to GFA:

R&Mn = K*GFAn*(1+WPI)

Employee – % Increase in

number of employees (Gn):

EMPn = EMPn-

1*(1+Gn)*(1+CPI)

A&G – No growth-linked

driver, only linked to

Inflation:

A&Gn = A&Gn-

1*(1+WPI)+Provision

CPI and WPI

worked out as

Average of

immediately

preceding three

years

R&M expenses –

escalated by

WPI

Employee

expenses –

Escalated by CPI

A&G expenses –

escalated by

WPI

CPI worked out

as 8.80%, WPI

as 5.11% in

Tariff Order FY

17

No

efficiency

factor

specified

Additional

allowance in

A&G expenses

(“Provision”)f

or new

initiatives as

may be

proposed by

Licensees

Punjab

Sources:

Tariff

Regulation

s, 2015

Tariff

Order FY

No growth-linked driver for

Employee expenses. Only

indexed to Inflation (50:50

CPI:WPI)

(EMPn) =

(EMPbase)*(INDEXn/INDEXb

ase)

For Employee

expenses

(INDX):

50%CPI+50%W

PI

For R&M &

A&G expenses –

No

efficiency

factor

specified

Terminal

Benefits to be

allowed at

actuals over

and above

norms

License Fees


16-17

For R&M and A&G

expenses, GFA is chosen as

growth-linked driver, in

addition to Inflation (WPI)

A&Gn= A&Gbase*GFAn/

GFAbase*(1+WPIInflation)

R&Mn= R&Mbase*GFAn/

GFAbase*(1+WPIInflation)

WPI to be allowed

at actuals, over

and above

norms

Haryana

Source:

Tariff

Regulation

s, 2012

Growth linked driver:

GFA for R&M expenses only

R&Mn = K * GFAn*INF

(EMPn + A&Gn) = (EMPn-1 +

A&Gn-1)*INF

Inflation (INF) is

used as 55% CPI

+ 45% WPI of

the concerned

year

No

efficiency

factor

specified

Terminal

Liabilities to

be provided

for separately

Jharkhand

Source:

MYT

Regulation

s, 2015

Growth linked drivers:

R&M – Indexation to GFA:

R&Mn = K*GFAn

Employee and A&G –

Increase in employee

expenses due to increase in

number of consumers / load

growth (Gn):

EMPn+ A&Gn =

EMPn-1 + A&Gn-

1*(1+INF)+Gn

Inflation (INF) is

determined as

55%CPI +

45%WPI

Reduced

by

Efficiency

Factor Xn.

Value to

be

determine

d in Tariff

Order.

However,

no Tariff

Orderis so

far issued

under the

said

Regulatio

ns

Terminal

Liabilities to

be allowed at

actuals over

and above

norms

Himachal

Pradesh

Sources:

MYT

Regulation

s, 2011

(with 2013

amendmen

t)

MYT

Order FY

Growth-linked drivers:

R&M – Indexation to GFA

Employee – Growth factor

(Gn) to be determined in

Tariff Orders based on

additional manpower

requirement based on

licensee’s filings,

benchmarking, and approved

cost by HPERC in the past

and any other factor that

Employee – CPI

(determined as

9.76% in Tariff

Order)

A&G – WPI

(determined as

8.62% in Tariff

Order)

Both average of

immediately

preceding three

No

efficiency

factor

specified

“Provision” in

both Employee

expenses and

A&G expenses

to factor

“uncontrollabl

e” and one-

time expenses


14-15 to

FY 18-19

HPERC feels appropriate.

R&Mn = K x GFAn-1

EMPn = [(EMPn-1) x (1+Gn) x

(CPI)] + Provision(Emp)

A&Gn = [(A&Gn-1) x (WPI)]

+ Provision(A&G)

to five years

Bihar Growth linked driver:

GFA for R&M expenses only

R&Mn = Kb * GFAn

EMPn = (EMPb * CPI

inflation) + Provision

A&Gn = (A&Gb * WPI

inflation) + Provision

“b” stands for Base Year

Employee

expenses

indexed only to

CPI

A&G expenses

indexed only to

WPI

None

specified

“Provision” in

both Employee

and A&G

expenses for

uncontrollable

and one-time

expenses, and

additional

expenses for

new

initiatives, if

any, proposed

by Licensee

3.27. As can be seen from the above, some form of growth-linked expense driver has been

considered for O&M expense norms in almost all the States. This is either as number

of consumers, or physical network parameter or GFA. In most cases, R&M expenses

have been indexed to GFA, being a growth-linked expense driver. Barring a couple of

States, no State has determined any efficiency factor. Even in those States where an

efficiency factor is determined, it is after allowing for growth-based increase. Further,

the factor for inflation in all States is very clearly tilted towards retail inflation (CPI).

In fact, in many States, CPI is the sole inflation driver for employee expenses, with no

weight assigned to WPI, whereas WPI is the sole driver for R&M and A&G expenses.

Further, most States provide a separate allowance for uncontrollable and one-time

expenses separately, over and above the norms, while also providing for terminal

liabilities separately.

Suggestions and Prayers:

3.28. Based on the above, RInfra-D suggests the following formula for determining O&M

expenses for the 3rd MYT Control Period and for the treatment both at the start of the

Control Period and at the time of true-up:

O&M expense formula

(Wires and Retail)

EMPn = EMPb*(1+Cn)*(1+CPI - X)

EMPn+1 = EMPn*(1+Cn+1)*(1+CPI - X)

A&Gn = A&Gb*(1+ Cn)*(1+INF - X)

A&G n+1 = A&Gn*(1+Cn+1)*(1+INF - X)

R&Mn = k*GFAn*(1+INF - X)


Where,

“n” represents the first year of Control Period, “n+1” represents 2nd year

and so on

“b” represents the Base Year for Control Period

“C” represents the % increase in consumer numbers over immediately

preceding year

“CPI” is the Consumer Price Index

“INF” represents the Composite Inflation factor made up of 60%WPI and

40%CPI

“k” represents the fixed % relation between R&M expenses and Gross

Fixed Assets (GFA)

“X” represents the Efficiency Factor of 1%

Start of year / CP True-up stage

“EMP and A&G” Base Year expenses EMPb and A&Gb

Three year average of actual expenses

of FY 12-13 to FY 14-15 (without

adjusting for efficiency gains or losses)

to arrive at mid-point i.e. FY 13-14, to

be escalated further by 5.72% twice to

reach the Base Year i.e. FY 15-16

Actual EMP (employee) and

A&G expenses of FY 15-16,

subject to prudence check and

after removing any abnormal or

one-time expenses, but without

adjusting for any efficiency

gains / losses

“C” % increase in consumers from one year

to another, based on projections as

approved at the time of MYT Order

Actual % increase in number of

consumers in the year

concerned over preceding year

“CPI” Average point to point inflation over

CPI Industrial Workers numbers for a

three year period immediately preceding

the first year of Control Period

Average point to point inflation

over actual CPI Industrial

Workers numbers for the year

concerned

“INF” Composite Inflation Index made of 60%

WPI and 40% CPI, using average point

to point inflation over WPI and CPI

Industrial Workers numbers for a three

year period immediately preceding the

first year of Control Period

Composite Inflation Index made

of 60% WPI and 40% CPI,

using actual WPI and CPI for

year concerned

“k” R&M expenses as % of GFA averaged

over three years preceding the Base

Year of Control Period

Does not change during the

Control period

3.29. The above approach is simple and easy to implement, allows for growth-based

increase in O&M cost, allows for inflation which is reflective of composition of

expenses and is in line with the approach being followed in most other States. This

approach also factors in the efficiency factor of 1% for each year of the Control

Period to represent the Licensees’ commitment to implement efficiency measures to

contain cost increase.

3.30. In view of the above, theCommission may exercise its powers under Regulations 101

and 102 to amend the Regulations with respect to O&M cost, so that the revised

norms could be used to determine allowable O&M cost for each year of the Control

Period at the time of MTR.


4. At the hearing held on 6 April, 2017, RInfra-D made a detailed presentation with

regard to amendment of and removal of difficulty in implementing Regulations 72

and 81 of the MYT Regulations, 2015, and elaborated on the following points:

1)RInfra-D has been severally constrained by introducing more stringent O&M

norms, increasing the loss reduction trajectory to 0. 25% per year compared to 0.05 %

per year earlier, while also expecting high performance in terms of service provision

and Standards of Performance. In addition, external factors like Service Tax, RI

charges, Property Tax, wage revision, etc. also impact RInfra-D, and the combined

effect is to make it increasingly difficult to discharge its responsibilities towards

consumers.

2) During FY 2016-17, RInfra-D has undertaken various actions/initiatives to reduce

the O&M expenses by reducing overtime of employees, revising meter reading

cycles, optimising manpower and shift timings, introducing new technologies and

promotions for e-transactions, managing complaints through updated GIS so as to

reduce travelling time of the staff, etc., which have reduced the costs to the extent

possible.

3) For FY 2017-18 and 2018-19, RInfra-D has planned various activities to reduce the

O&M expenses such as Meter Reading books reshuffling, introduction of Mobile apps

for field force, fuse men optimization, shifting partially from own Cash Collection

Centres to Post Offices and digital avenues, reductions in incoming LT faults through

current controllers and sensors, introduction of new technologies for online

application, implementation of Automated Metering Infrastructure, etc. As a part of

Smart Grid implementation, RInfra-D will establish a RF Communication Canopy

and will install Smart Meters for consumers having consumption of more than 500

Units/ Month

4)Amendments are proposedon the following among other considerations:

a) Growth based cost increase - Inclusion of business growth drivers as escalation

parameters

b) Measure of Inflation - Inflation factor to reflect composition of O&M expenses

c) Base O&M expenses for determining normative allowance - Correction of Base

O&M expenses at the time of MTR

d) Uncontrollable costs – Identify and allow changes separately

Commission’s Analysis and Ruling

5. In the last MYT Order of RInfra-D for the 3rd

Control Period in Case No. 34 of

2016, the Commission had recognized the issues arising from the low inflation

factor resulting from the normative provisions of the MYT Regulations, 2015.


Hence, the Commission had invoked its power to remove difficulties and had

modified the norms in their application to RInfra-D as follows

“Regulations 72.4 and 81.4 of MYT Regulations, 2015 specify as follows:

“The O&M expenses for each subsequent year shall be determined

by escalating the baseexpensesdetermined above for FY 2015-16,

attheinflation factorconsidering 60% weightage for the actualpoint to

point inflationover Wholesale Price Index numbers asper Office of

Economic Advisor of Governmentof Indiain thepreviousyearand40%

weightagefor theactualConsumerPrice Index for Industrial

Workers(all India)asper LabourBureau, Government of

Indiainthepreviousyear,asreducedby anefficiency factor of 1%, to

arrive at permissible O and M expenses for each year of the Control

Period.”

The escalation factor for the O&M Expenses from FY 2016-17 is to be

worked out on the inflation factor considering 60% and 40 % weightage for

actual point to point WPI and CPI, respectively, in the previous year,

reduced by an efficiency factor of 1%.

The Commission has analysed the WPI and CPI data for the previous

yearFY 2015-16. By applying 60% weightage to WPI and 40% weightage to

CPI for FY 2015-16, the escalation rate works out to 0.74%. After applying

the efficiency factor of 1%, the escalation factor to be considered for

projecting O&M expenses from FY 2016-17 works out to -0.26%.

The Commission recognises the fact that the escalation rates based on

actual WPI and CPI have reduced significantly during last the 2 years as

compared to previous years. It may not be appropriate to apply this negative

inflation factor for projecting the O&M Expenses from FY 2016-17 onwards

as some O&M expenses are likely to increase on a year-to-year basis.

The Commission also notes that, for the O&M expenses forits Tariff

Regulations, 2014, the CERC has considered the escalation rate computed

based on 5-year average WPI and CPI from FY 2008-09 to FY 2012-13

considering 60% and 40% weightage, respectively, and compared these with

the actual increase in O&M expenses.

The inflation factor based on the provisions of the MYT Regulations, 2015 is

negative due to the reduction in WPI in FY 2015-16 with respect to FY

2014-15. The Commission is of the view that it would be more appropriate at

this stage to consider the WPI and CPI variation over a period longer than a

year so that wide fluctuations in any one particular year are smoothened.

Hence, the Commission has considered the three-year average variation in

WPI and CPI to arrive at the inflation factor for projecting the O&M

Expenses from FY 2016-17 onwards. Based on this approach, the inflation

factor giving 60% and 40% weightage to WPI and CPI, respectively, works

out to 3.97%.After applying the efficiency factor of 1%, the escalation factor

to be considered for projecting O&M expenses from FY 2016-17 to FY 2019-

20 would be 2.97%.


In view of the above, and in exercise of its powers under Regulation 102 of

the MYT Regulations, 2015 to remove difficulties, has computed the O&M

Expenses for FY 2016-17 to FY 2019-20 with an escalation factor of 2.97%

considering the three-year instead of one-year average variation in WPI and

CPI.”

6. A similar dispensation was provided in the MYT Orders of other Licensees also.

However, even thereafter, RInfra-D (in the present Petition) and some other

Licensees have approached the Commission for further relaxation or modification

of the O&M expense basis and norms and an increase in the expenses allowed.

7. The Commission is of the view that reasonable O&M Expenses should be allowed

to the Distribution and other Licensees, and has noted the issues raised by RInfra-

D even with the relaxed dispensation and higher escalation factor of 2.97%

(consisting of the modified inflation index as adjusted by the efficiency factor)

allowed in its MYT Order.

8. The weightage of 40% to CPI and 60% to WPI specified in the MYT Regulations,

2015 took into account the Tariff Regulations of the CERC, though the CERC

had considered a 5-year average as against one year in the MYT Regulations,

2015. However, considering the issues raised by RInfra-D and other Licensees, the

Commission is of the prima facie view that these weightages and certain other

stipulations may require to be revisited considering the characteristics of

generation, transmission and distribution activities. Hence, the Commission

recently invited public comments by 17 November, 2017 on certain proposed

amendments to the Regulations in this regard, along with an Explanatory

Memorandum, and is considering the responses received.

The Petition of M/s Reliance Infrastructure Limited (Distribution) in Case No. 9 of 2017

stands disposed of accordingly.

Sd/- Sd/-

(Deepak Lad) (Azeez M. Khan)

Member Member

before the maharashtra electricity … 58 42/order-9 of 2017... · · 2017-11-22merc order –...

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