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ANDHRA PRADESH ELECTRICITY REGULATORY COMMISSION


Hyderabad
O.P. NO.510/2001

Date: 24 th March, 2002

Present : Shri. G.P.Rao, Chairman


Shri. D.Lakshmi Narayana, Member
Shri. A.V.Subba Rao, Member

Between
Transmission Corporation of Andhra Pradesh Limited (APTRANSCO)
Eastern Power Distribution Company of Andhra Pradesh Limited (APEPDCL)
Central Power Distribution Company of Andhra Pradesh Limited (APCPDCL)
Northern Power Distribution Company of Andhra Pradesh Limited (APNPDCL)
Southern Power Distribution Company of Andhra Pradesh Limited (APSPDCL)
……………Applicants
AND

Suppliers of Electricity, the end users of electricity ( including captive use) availing Power
Wheeling Service and others

……………Respondents

Sl No Names of the Objector/Participants

1 Andhra Pradesh Gas Power Corporation Limited


(APGPCL)
2 The Andhra Pradesh Paper Mills Limited
3 Sriba Industries Limited
4 NATL Limited
5 Ferro Alloys Corporation Limited
6 MIDHANI
7 ITC Bhadrachalam Paper Boards Limited
8 Renewable Energy Developers Association
9 Cement Corporation of India Limited
10 Priyadarshini Cement Limited
11 RVK Energy Private Limited
12 Rain Calcining Limited
13 Rastriya Raithu Seva Samithi, Chittoor
14 M. Venugopala Rao
15 Peoples Monitoring Group on Electricity Regulation
16 APSEB Assistant Engineers Association
17 APSEB SC / ST Employees Welfare Association
18 APSEB Engineers Association
19 PRB Power Private Limited
20 Jindal Strips Limited
21 Andhra Pradesh Spinning Mills Association
22 The India Cements Limited
23 ESPAR Pak Limited
24 Small Hydro Power Developers Association

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25 My Home Cement Industries Limited


26 Dhana Lakshmi Rice and Cotton Mills (KG Chowdary)
27 Precot Mills
28 Jyothi Bio Energy
29 Andhra Sugars Limited
30 Sree Rayalaseema Green Energy Limited
31 Weizmaan Limited
32 Ind-Bharat Engineers Limited
33 Gayathri Agro Industrial Power Limited
34 Jana Vignana Vedika, Khairatabad Branch
35 B. Rama Krishna Rao
36 Grindwell Norton Limited
37 South Central Railway
38 Penna Cement Industries Limited
39 Sudha Agro Oil & Chemical Industries Ltd.,
40 Vathsasa Power Projects Ltd
41 Gautami Solvent Oils Ltd
42 JOCIL Ltd
43 Sudalgunta Sugars Ltd
44 Bio-mass Developers Association
45 GMK Products Pvt Ltd

[Heard on 20 th & 21 st of December 2001]

***

The Andhra Pradesh Electricity Regulatory Commission (hereinafter called 'the


Commission') having received an application dated 8th October 2001 from the above applicants
(as a follow up on their request for allowing Wheeling Charges in Cash @ Re.1/kWh contained in
their Filing of Proposed Tariffs (FPT) for 2001-2002, in respect of energy wheeled by them, of
electricity generators/suppliers hereinafter called ‘project developers’, for delivery to the end users
(including captive use), the Commission having invited objections from the public through press
notification and having held public hearings on 20-12-2001 and 21-12-2001, having heard
applicants, the respondents and the public and having considered the documents available on
record and all other matters relevant and incidental thereto, passed the following order:-

ORDER

CHAPTER – I
PLEADINGS AND PROCEEDINGS AT THE TARIFF HEARING 2001- 02
1.1. The Applicant No. 1 Transmission Corporation of Andhra Pradesh (hereinafter referred to as
`the APTRANSCO’) in its Annual Revenue Requirements/Expected Revenue from Charges
(hereinafter referred to as `ARR/ERC) and Tariff filings for 2001 -02 stated that its
activities as the Transmission & Bulk Supply Licencee consisted of two distinct components,
viz., the transmission business and the bulk supply business. APTRANSCO stated that its
customers can be broadly classified into two categories namely (a) Distribution Licencees
who buy energy in bulk from APTRANSCO for effecting retail supply to their consumers and
(b) others namely the project developers who use the Transmission & Distribution system
for conveyance of energy from the place of generation to the place of consumption, which
act in the electricity parlance is popularly known as Wheeling.

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1.2 APTRANSCO in its filings for the year 2001-02 stated that the cost associated with serving
the above two categories, viz., Distribution Licencees (bulk purchasers) and other users of
the Transmission & Distribution system for wheeling energy are different. The Distribution
Licencees are the principal users of the Transmission & Distribution System on a perpetual
basis, whereas each of the other users of the Transmission & Distribution System (project
developers), is an individual user of electricity who requires a specific but different service,
since they require electricity at different time periods and in different quantities. The
Transmission & Distribution of energy involves costs related to erection and maintenance of
the system. In addition there is a cost on account of the losses in the transmission and
distribution system in the process of wheeling the energy.

1.3 Regarding the methodology to be adopted for working out the costs associated with the two
components,viz., Transmission business and Bulk Supply business, APTRANSCO stated
that the marginal cost based pricing methods reflect the economic costs of servicing much
more closely than embedded cost based pricing. APTRANSCO also stated that they had
made attempts to develop marginal cost information for providing an appropriate basis for
pricing the service. However, marginal cost studies require precise projections of future
loads and load profiles, additional generation capacity to be contracted and additional
transmission capacity to be installed. In addition to the incremental costs incurred in the
short run for servicing the incremental load, there is need for adequate information on long
term load growth, load flows and resource plans. APTRANSCO stated that these were not
available with it on account of the inadequate measurement and forecasting infrastructure.

1.4 APTRANSCO further stated that for developing the embedded cost to some degree of
accuracy, a proper operational information (historical) of the Discoms is necessary. Since
the erstwhile Andhra Pradesh State Electricity Board (hereinafter the “APSEB”) was a
vertically integrated entity, there was no need for determining the operational parameters on
a district-wise (zone-wise) basis. APTRANSCO, after the formation of the Discoms, has
established interface metering between the Discoms and APTRANSCO. Presently all these
meters are not enabled with Demand measuring and adequate data storing features which
are essential for obtaining a true picture of the load pattern and other parameters. The
costs of transmission (wheeling) of energy are dependent on distance and voltage of
transmission, in addition to seasonality and time of the day. Since these costs will vary for
every customer, the cost data will vary for individual cases. Similarly the costs of bulk
supply to the Discoms will also vary depending on the usage profile.

1.5 APTRANSCO also felt that for the present filing detailed data on usage profile was not
available and hence, using a cost of service study at this juncture based on broad
assumptions might be misleading.

1.6. APTRANSCO in its filing proposed to introduce a wheeling charge of Re.1/- per Kwh for the
project developers, doing away with the system of receiving energy in kind for the wheeling
service provided by it. To quote from the filings for the year 2001-02

“For the ensuing year, APTRANSCO proposes to do away with the system of
receiving energy in kind in lieu of wheeling and proposes to introduce a wheeling
charge of Re. 1 per kwh. While this will provide a surplus over costs for
APTRANSCO, APTRANSCO believes that such a surplus is justified. APTRANSCO's
own Industrial consumers bear the burden of cross-subsidy provided to subsidised
categories. By this Hon'ble Commission's own computations, HT Industrial
consumers of APTRANSCO pay more than twice the cost of service applicable for
them. This puts them in an inequitable position as compared to the industries which
have access to wheeled energy either through group captives or through third party
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have access to wheeled energy either through group captives or through third party
sales who are currently paying even less than what it costs APTRANSCO to wheel
the energy for them. APTRANSCO believes that with the proposed charges of Re.1/-
per kwh, the inequity will be partially addressed. After deduction of its own costs,
APTRANSCO expects the proposed charges to provide additional revenue
mobilisation which APTRANSCO will pass on as a reduction in the Bulk Supply Tariffs
to be charged to the Discoms. However APTRANSCO proposes to exclude the non-
conventional energy generators from the purview of the proposed tariffs for FY 2002
as a measure of encouragement to these sources of energy. The existing
arrangements are proposed to be continued for these generators".

1.7 In the comments / objections received in response to the notification of APTRANSCO's


proposed tariffs for Financial Year 2001-02 and later, in the public hearings held by the
Commission between 26th February 2001 and 8th March, 2001 on the Revenue Calculations
and Tariff Proposals given by APTRANSCO for the above year, references were made in
regard to the proposed introduction of wheeling charge of Re.1/- per Kwh by some
objectors. The contentions of the objectors in regard to the proposed transmission /
wheeling charges sought by APTRANSCO were:
a) APTRANSCO is bound by the wheeling agreements signed by its
predecessor Andhra Pradesh State Electricity Board (APSEB).
APTRANSCO cannot unilaterally alter either the rate or the manner of
adjustment of wheeling charges in kind. These agreements are valid for a
specified period and APTRANSCO cannot resile from the terms of the
agreements at this stage.
b) The wheeling charges etc. were settled by Government of Andhra
Pradesh (GoAP) which had issued necessary notifications. APTRANSCO
has no authority to ask for any deviation or change from what the GoAP
had decided and had set out in the notifications.
c) The Commission has also no power to deviate from the binding agreement
reached between the project developers and the APSEB in regard to the
wheeling charges.
d) In any event, APTRANSCO is claiming wheeling charges at Rupee 1/- per
unit, which is totally unjustified, exhorbitant and illegal. APTRANSCO has
not given any justification whatsoever for the wheeling charges to be levied
at Rupee 1/- per unit.
e) The Project Developers are not required to cross-subsidise or contribute
any money towards cross subsidization of certain classes of consumers,
which the HT consumers provide under the tariff orders for licencees
issued by the Commission.

1.8 As part of their presentation in the Public hearings, the Commission staff also submitted
that APTRANSCO had not given proper justification for the proposed tariff of Re.1/-

1.9 In response to the objections APTRANSCO stated that fixation of tariff including revision
thereof is a legislative function as held by the Hon'ble Supreme Court of India in several
decisions and that the Commission is entitled to adjudicate on the Tariff for Wheeling without
being bound by any previous notification issued by the Government of Andhra Pradesh
(GoAP) or otherwise any agreement signed between APSEB/APTRANSCO . APTRANSCO
also submitted that the principle of promissory estoppel would have no application when the
statute viz the Andhra Pradesh Electricity Reforms Act 1998 (hereinafter `the Reform Act’)
has specifically empowered the Commission to fix tariff. APTRANSCO stated that only 3%
of the end users to whom the energy is wheeled (who are HT Consumers) were getting 34%
of energy by Wheeling without contributing to any cross subsidy, violating the principles
enshrined in Article 14 of the constitution. APTRANSCO pointed out that the Transmission
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enshrined in Article 14 of the constitution. APTRANSCO pointed out that the Transmission
& Distribution network was laid to transmit 42000 MU on an average to about 13 million
consumers. The few generating units and end users who get the energy wheeled cannot
claim the use of the Transmission & Distribution system to their advantage at the cost of all
other consumers in the state who are supplied electricity by the Distribution Licencees.

CHAPTER II
THE COMMISSION'S VIEW AS EXPRESSED IN ITS TARIFF ORDER OF 24th MARCH, 2001.

2.1 While deciding the ARR/ERC of the applicants for the year 2001-02 the Commission
decided to consider the issues relating to the proposed tariff for wheeling in a separate
proceeding as stated in para 143 of the Commission's Tariff Order dated 24th March 2001
as under:

“The issues relating to setting appropriate transmission/distribution wheeling charges


are complex in nature and require proper consideration. These include determination
of losses in different parts of the system, viz., transmission losses (upto step down to
33 kV) and distribution losses (33 kV and below) forming technical component and
the other various losses in metering, meter reading, billing etc., including theft forming
the non-technical component of the total losses. The Commission will consider the
issues of appropriate transmission/distribution wheeling charges in a separate
proceeding. At this stage, the Commission will continue the existing arrangement on
a provisional basis without prejudice to the Commission's rights to consider the
issues relating to appropriate transmission/distribution wheeling charges at a later
stage. The Commission is not expressing any opinion on the rival contentions of the
objectors and APTRANSCO/ Distribution Companies at this stage”.

CHAPTER – III
APPLICATIONS MADE BY THE APPLICANTS IN THE PRESENT PROCEEDINGS

3.1 APTRANSCO made a filing on 8th Oct,2001 on its own behalf as well as the four Power
Distribution Companies of Andhra Pradesh (viz APCPDCL, APNPDCL, APEPDCL and
APSPDCL) (hereinafter collectively called `DISCOMS’) by way of a joint application for a
decision on charges for wheeling of energy. The Applicants have stated that the present
application has been filed to seek adjudication upon the outstanding issue of revision of
wheeling charges and with a proposal to change over from the present practice of
collecting wheeling charges in kind and to establish wheeling charge of Re.1/- per kWh of
wheeled energy.
3.2 While in the Filing of Proposed Tariffs ( FPT) made earlier for the year 2001-02 there was
a proposal to exclude the Non Conventional energy sources, there is no propoasl in this
application filed on 8th October 2001 to exclude such Nonconventional energy sources
from the proposed revision of wheeling charges.

3.3 APTRANSCO presented the following calculations in support of the rate of Re.1/- per kWh
proposed by it for the year 2001-02.
(All figures in Rs. Crs)

S.No Particulars DISCOMS TRANSCO Total

1 Wages and Salaries 407.70 32.79 440.49


2 Administration and General Expenses 66.56 1.36 67.92
3 Repairs and Maintenance 146.59 29.79 176.38

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4 Rent, rates and taxes 2.35 2.04 4.39


5 Approved Loan and Interest 244.91 197.98 442.89
6 Interest on consumer security deposit 26.81 - 26.81
7 Legal charges 0.33 0.50 0.83
8 Auditors Fees 0.08 0.02 0.10
9 Depreciation 240.63 100.11 340.74
10 Other Expenses 29.89 4.83 34.72
11 Contribution to Employees fund 51.65 5.84 57.49
12 Special appropriation permitted by the 0.00 90.29 90.29
Commission
13 Contribution to contingency Reserve 9.48 6.58 16.06
14 Total 1226.98 472.13 1699.11
15 Reasonable Return 34.40 167.12 201.52
16 Total network value addition 1261.38 639.25 1900.63

The breakup of Re.1 per kWh proposed by the Applicants for wheeling charges is as follows:

Amount Rate
S.No Particulars
(Rs. Crs.) (Ps./kWh)
1. Network Establishment and Operation 1699.11 41.63
Cost
2. Cost of Losses in the System 1250.29 30.63
3. Reasonable Return 201.52 4.94
4. Transmission & Wheeling Charges 144.56 3.54
(External)
5 Surplus recovery proposed from 19.26
wheeling
Total 100

The details of the calculations made by the Applicants are as follows:

Item -1: Network Establishment and Operation Cost


A. Total Transmission & Distribution Expenses for APTRANSCO &
DISCOMS = Rs. 1699.11 crs

B. Total Power Purchases by APTRANSCO = 40816 MU

C. T & D Expenses per unit (A/B) = 41.63 Ps.

Item-2: Cost of Losses in the System


D. Transmission loss upto 33 KV breaker = 8.5%
E. Actual Losses upto 33 KV breaker (40816*0.085) = 3469.36 MU
F. Transmission & Distribution losses in 33 KV and 11 KV
network. = 11%

=(40816 -3469.36)*0.11 = 4108.13 MU

G. Average cost of power purchase = Rs.1.65 per unit

H. Total Cost of T&D losses upto 11KV level

=(3469.36+4108.13)*1.65

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=Rs. 1250.29 Crs.

I. Cost per unit (H/B) = 30.63 Ps.

Item - 3: Reasonable Return:

J. Amount of Reasonable Return = Rs.201.52 Crs.

K. Cost per unit (J/B) = 4.94 Ps.

Item - 4: Transmission and Wheeling charges (External):

L. Wheeling charges paid to PGCIL for transmission = Rs.144.56 Crs of CGS power as per
APERC Tariff Order

M. Cost per unit (L/B) = 3.54 Ps.


Item -5: Surplus recovery proposed from wheeling = 19.26 Ps
TOTAL WHEELING CHARGES = (41.63 + 30.63 + 4.94 + 3.54 + 19.26)
= 100 Ps.

3.4 The Applicants also proposed that the wheeling charges (calculated at Re.1/- per kWh on the
power wheeled as proposed by them) will be shared between APTRANSCO and DISCOMS in the
ratio of 25:75 for all wheeling at 33 KV and 11 KV while for the wheeling at 132 KV and above, the
revenue would accrue fully (100%) to APTRANSCO for the reasons stated by APTRANSCO as
under:
· For voltages at 132 kV and above, the entire wheeling charges will be collected
by APTRANSCO as the Transmission network at 132 kV and above voltages
pertains to APTRANSCO and the DISCOM networks are not involved.
· The Wheeling charges for voltage levels of 33 kV & 11 kV are proposed to be
shared between APTRANSCO and DISCOMs in the ratio 1: 3 keeping in view the
proportional volume of transmission & distribution networks involved.;
· A share of 25% is considered for APTRANSCO in view of the fact that in most of
the cases, the scheduled consumers are not on the same 33 kV or 11 kV feeder
on which the developer is pumping energy. In such circumstances, the usage of
APTRANSCO transmission network is inevitable and hence a portion of the
wheeling charges (25%) is considered for APTRANSCO”.

3.5 APTRANSCO has given the following reasons to justify the inclusion of 19.26 paise towards "
surplus recovery" in its details for the calculation of Re.1/- towards the wheeling charges proposed
by it.

(a) The costs have been computed on " embedded cost" method of pricing and not on "long
run marginal costs" (LRMC) and that embedded costs are generally less than LRMC.
APTRANSCO have stated lack of ancillarynecessary data / information from its records as
the reasons for not working out LRMC and expressed their commitment to improving
information availability which would allow determination of a reasonable estimate of LRMC
in future.

(b) Cost to Serve wheeled consumers is more than the cost to serve the Distribution
Companies as the load curves of the DISCOMs are flatter than those of the individual
wheeled users.

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(c) There are other ancillary services provided to wheeling consumers by APTRANSCO as well
as DISCOMs which are difficult to cost but have significant costs associated. For example,
the following:

· Reactive power compensation


· Facility of banking energy
· Emergency power
· Continuous network access

(d) The provisions of cross-subsidy in the tariff of similarly placed industrial consumers who
are meeting their power requirement from the DISCOMs.

CHAPTER IV
PROCEEDINGS HELD BY THE COMMISSION

4.1 APTRANSCO was directed by the Commission to notify the filing in two newspapers (one English &
the other Telugu) inviting objections from the public for the proposal. Objectors were also asked to
indicate whether they would like to participate personally in the public hearings to be held later. A
copy of the advertisement No. RO75/2001 which appeared in the Press on 26-10-2001 is at
Annexure –‘A’. In response to this notification, 40 Objectors filed their objections. List of the Objectors
is at Annexure – ‘B’. M/s. Sudha Agro Oil & Chemical Industries Ltd., Samalkot submitted their
Objections in their letter No. DVS/APERC/2001:02 dated 17-12-2001 and requested for condonation
of delay. A total of 38 Objectors expressed the desire to be heard in person [List at Annexure ‘C’].
APTRANSCO furnished its written responses on the objections/suggestions to the Commission and
the Objectors in its letter No. CE/Comml/ADE-1/Wh.Charges/D.No.397/01 dated 15-12-2001.

4.2 Public hearings were held at Ravindra Bharati, Hyderabad on 20th & 21st December 2001. The
Public hearing commenced on 20-12-2001 with a presentation to the Commission by the Commission
Staff. There were presentations by Sri. T.V.S.N. Prasad, Managing Director, CPDCL on behalf of the
DISCOMs, Sri. P.M.K. Gandhi, Director (Comml). and Sri. Hemant Sahai, Advocate on behalf of
APTRANSCO. The Objectors presented their objections at the hearing personally or through counsel
on 20th & 21st December 2001. Fifteen written representations were received during the public
hearings. [Annexure D] This was followed by Preliminary response by Sri T.V.S.N. Prasad, Managing
Director, CPDCL on behalf of the DISCOMs, Sri. P.M.K. Gandhi, Director (Comml), APTRANSCO &
Sri. Hemant Sahai on behalf of APTRANSCO to the Commercial & Legal objections raised during the
hearings. on 21-12-2001. APTRANSCO followed this up with a letter No. CE/Comml/ADE-
1/Wh.Charges/D.No.406/2001 dated 31-12-2001 containing its responses on new objections raised
during the hearing.

CHAPTER V

SUMMARY OF PUBLIC OBJECTIONS AND APPLICANTS’ RESPONSE TO PUBLIC OBJECTIONS

Legal Issues

5.1 The following objections were raised by the objectors using the wheeling services, as
preliminary legal issues.

A. Maintainability of Joint Applications

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APTRANSCO and four DISCOMS are separate legal entities, each holding a distinct
licence issued by the Commission. The joint application is not maintainable. The
common application made by APTRANSCO and DISCOMS for enhancement of
Wheeling Charges to Re 1/kWH is contrary to the provisions of law, the conditions of
licence and order of the Commission. There is continuing malaise of undue
interference by APTRANSCO in the operation and management of DISCOMs. Hence
, each licencee should file separate application with APERC for fixation of wheeling
charges in their respective portion of the network. The objections also stated that the
aspect related to DISCOMS should not be clubbed with the transmission and
wheeling charges, even on revenue shared basis.

The APTRANSCO denied that it was interfering in the Distribution & Retail Supply
activities of DISCOMs. Since, the transmission network of APTRANSCO and
DISCOMs are interconnected from 220 KV to 11 KV level, the utilities filed
Application jointly to determine the charges. For voltages at 132KV and above, the
entire wheeling charges will be collected by APTRANSCO as the Transmission
network at 132 KV and above voltages pertains to APTRANSCO and the DISCOM
networks are not involved. The Wheeling charges for voltage levels below 132 KV
i.e., 33 kV & 11 kV are proposed to be shared between APTRANSCO and DISCOMs
in the ratio 1:3 keeping in view the proportion of Transmission & Distribution network
involved.

B. Application – New Application or Continuation ? :

The objectors stated that the application filed cannot be treated as in continuation of
earlier ARR/FPT 2001-02 but should be treated as a fresh application. The objectors
felt that the application amounted to seeking review of the earlier order of 24- 3-
2001. The objectors also contended that the Commission had rejected the earlier
application.

The applicants replied that the application is the continuation of the earlier one with
additional facts and figures to justify the proposed wheeling charge of Re. 1/kwh for
the Financial Year 2001-02.

C. Prospective or Retrospective
The objectors stated that the applicability of proposed wheeling charge should be on
prospective and not retrospective basis. In this regard the objectors relied on
Section 26 (6) of the Reform Act which provides that the Tariff will become effective
only after seven days of the publication in the newspaper. It was also pointed out
that it was an established rule that all laws/orders having financial implications
should have prospective and not retrospective effect.
The Applicants stated that the Power to determine tariffs was vested with the
Commission and that the Licencee will abide by the Commission‘s decision

D. Authority of the Commission to revise the wheeling charges or the nature


of collection

Some of the Objectors contended that the Commission has no authority for setting
the tariff (Wheeling charges). The existing Memoranda of Understanding (MOUs)
between APTRANSCO (erstwhile APSEB) and the industries using wheeling services
(providing for wheeling charges in kind) were entered into prior to the Reform Act
came into force. Hence, the proposal of APTRANSCO & DISCOMs to change the
rates from kind to cash (100 paise/unit) is not maintainable. The MOUs are binding
on APTRANSCO as per the doctrine of promissory estoppel.

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on APTRANSCO as per the doctrine of promissory estoppel.

In reply to the above issue APTRANSCO submitted that fixation of Transmission/


Wheeling Tariff including revision thereof is a legislative function and the Commission
is entitled to adjudicate on the Transmission/Wheeling Tariff without being bound by
any previous notification issued by the Government or wheeling or other agreements
signed between APSEB/APTRANSCO and the project developers. The principle of
promissory estoppel would have no application when the statute, viz., the Reform Act
has specifically empowered the Commission to fix tariff. Any contract or MOU
between the parties concerned is subject to a review by the Regulatory Authority in
performance of it's statutory obligations.

E. Objections from Non-Conventional Energy Developers

Objectors belonging to the Non-conventional Energy sources claimed that they took
up their generation ventures under the Government of India Schemes and the
incentives provided therein which should not be disturbed till the end of the incentive
scheme in 2004. They also pointed out that the Power Purchase
Agreements

) with the APSEB/ APTRANSCO were in fact drafted by the licencee and that it was
unfair to repeatedly alter them. Some of them also referred to the proposal of
APTRANSCO in its original ARR/ FPT not to seek a change in the rate of Wheeling
Charges in the case of Non-conventional Energy Sources, which does not find a
place in the Application dated 08-10-2001. They also contended that Wheeling
Charge is not a tariff related issue and hence the Agreement cannot be annulled by
regulatory decisions. They also felt that the application of uniform rate of wheeling
charges among unequals affects BIOMASS power generating units. Some of them
mentioned that cases were pending in the Hon’ble High Court of AP – (on third party
sales) --for disposal and that final orders were awaited and that a stay was in place
and that the Wheeling Agreements already in place will continue to be in force till the
final orders are issued in the Hon’ble High Court.

In response the Applicant contended that the prayer of the Objectors was for
continuance of the incentives and that the Commission was entitled to adjudicate on
the tariff without being bound by any previous notifications issued by Government of
India. The Applicant maintained that the Commission was entitled to adjudicate on
the wheeling charge. The Applicant also stated that the case pending in the Hon’ble
High Court was not related to Wheeling Charges and hence the Commission could
revise Wheeling charges. The Applicants also stated that the Wheeling charges
should be made applicable even to Non Conventional Energy Developers.

F.. Miscellaneous :

One of the persons appearing in response to the public notice relied on the
Commission’s Order No. 73/2000-01 in the case of Astha Power Corporation in O.P.
No. 348 of 2000 passed on 4th July, 2000 in support of the plea that the Commission
had power to regulate the tariffs for supply of electricity by persons other than
licencees also. Reference was also made to the observation of the Commission in its
order No. 285/2001 Dt. 4th May 2001 on Mini Power Plants in O.P. No. 70-B/2001
that the Wheeling Agreements earlier entered into were not binding on the
Commission.

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Contentions on issues on merits:

General
5.2 The project developers availing wheeling services objected that the rationale and reasoning
set out by the applicants for proposed wheeling charge of Re. 1/- per kwh was illogical,
irrational, unjustified and illegal. They also offered the following comments on the proposed
rate.

(a) The wheeling charges proposed by the Applicant is exhorbitant, arbitrary and without
any valid justification.

(b) The wheeled energy does not flow from place of generation to place of utilization. It is
only transmitted by displacement. Hence, the existing wheeling charges in kind is more
than enough compensation for loss and use of network charges

(c ) The inefficiency of APTRANSCO and DISCOMS can not be passed on to industries


wheeling power in the form of hike in existing wheeling charges.

(d) Uniform rate of 100 paise/unit irrespective of voltage level is not justifiable. South
Central Railway contended that the Power Grid Corporation of India Limited’s (PGCIL)
Wheeling Charge for Northern Railway was 11.50 ps/kwh and that the rate for wheeling
at 132 kV should be much less than that for wheeling at 33 kV and 11 kV.

(e) The pooling of costs was not correct as the entire system was not being used by all the
users alike.

(f) There is no valid justification for the surplus recovery component viz. 19.26 P/U.

(g) Payment in kind takes care of inflation and was covered in the Agreements.

(h) There is no additional cost involved in wheeling the power from the developer to the end
users as the end users are already consumers of licencees and as the network is
already existing.

(i) Only a small portion of the network establishment and operation expenses are relatable
to the transmission/wheeling function. Only a rateable proportion of the expenditure in
such part of the network are relevant for the purposes of determining a wheeling charge
at 11KV and higher voltage and should be taken.

(j) ITC Bhadrachalam contended that the EHV Line connecting them to the Grid was laid
way back in 1988 and all development charges have been paid by them and that the
line does not need any maintenance. Hence they need not pay Network charges.

5.3 In reply to the above the applicants stated that


(a) the proposed wheeling charges of Re.1/ kwh is arrived based on the figures
approved by the Commission in the tariff order dated. 24. 03.2001. Using those
figures and considering the following facts, the applicants calculated the embedded
cost of wheeling services.

(b) The existing wheeling charges in kind result in inadequate compensation for the costs
incurred and services provided by APTRANSCO and DISCOMs in wheeling of the
energy through Transmission & Distribution network;

(c) The project developers stand to make abnormal profits on account of the present
arrangements due to the large differences between the costs incurred by the
suppliers of electricity and the rates paid by the beneficiary industries; and

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(d) the Discoms are compelled to provide cross-subsidies to a large body of consumers
who do not have the capacity to pay cost reflective tariffs.

(e) Comparison with wheeling charges of PGCIL was not correct as the State
Transmission & Distribution system was much more extensive, wider and complex
compared to PGCIL’s 400 kV / 220 kV system supplying a few consumers.

(f) The Transmission & Distribution lines are not laid for wheeling purpose alone but
principally for carrying out the distribution and supply of electricity to the public at
large serviced by the Licencee. In response to ITC plea, APTRANSCO clarified that
the Network charges were for the entire network and for the total units handled. The
contention that the Development Charges paid are more than compensation for the
establishment and operation cost was erroneous.

5.4 Organisations like APSEB A.Es Association, APSEB SC/ST Employees Welfare
Association, APSEB Engineers Association, Jana Vignana Vedika, Peoples Monitoring
Group on Electricity Regulation etc., generally supported the applicant. The People’s
Monitoring Group suggested charging for Reactive power wheeling also. APSEB AE’s
Association and APSEB SC/ST Employees Welfare Association felt the Wheeling Charges
may be fixed at 159.2 ps/kWH taking into account 59.2 ps/kWH for other auxiliary services
provided by the licencees.

5.5 APSEB Engineer’s Association expressed the view that the special service costs could be
taken as 10% of the average power purchase cost of APTRANSCO ie., 16.50 ps. They
stressed on equal treatment of HT Consumers of Licencee or of the Developers .They
offered the following comments on the proposed hike in wheeling charges.

(i) The rate proposed is too low to cover Transmission & Distribution losses and to
compensate for use of the Transmission & Distribution System

(ii) By selling at not less than applicable HT tariff, the private developers make higher
profit.

5.6 In contrast to the objection of private power developers that the proposed wheeling charge of
Re.1/kWh is very much on the higher side, some public bodies like Jana Vignana Vedika
suggest alternative calculation of wheeling charge to cover various components of service
offered by the Applicants. Among the alternative calculations based largely on the cross-
subsidy element in the HT tariff suggested by these public bodies, the minimum wheeling
charge was 155 paise per unit.

5.7 The Ferro Alloy Units represented that they were already paying PGCIL for external charges

Objections/Comments on Transmission & Distribution Losses to be


taken into account:

5.8 The project developers and end users offered the following comments on the Transmission &
Distribution loss adopted for the calculation of Wheeling Charges.

(i) The wheeling charges are claimed based on the transmission loss figure of 8.5%
proposed by the APTRANSCO . Losses at EHT of 8.5% is very high and not
acceptable.

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(ii) It is not correct to take into account the loss of 11% for 33KV and 11KV networks.

(iii) Distribution losses cannot be loaded onto wheeling charges for private developers
using only the transmission system.

(iv) Losses occurring out-side AP Grid i.e. in PGCIL lines have no relevance to
wheeling charges.

(v) The licencees cannot take long time to determine the actual Transmission &
Distribution losses.

(vi) The estimated Transmission & Distribution losses for 2000-01 was taken at
35.4% comprising 4.5% transmission losses, 17.9% technical distribution losses
and 13% non-technical distribution losses. The overall Transmission &
Distribution losses for 2001-02 is projected at 32.3% which was adopted by the
Commission for the purpose of determination of tariff. Now, the applicant claims
transmission loss at 8.5% and losses at 33KV and 11KV network are taken at
11%. It is therefore unbelievable that the distribution loss in the entire low voltage
network is a mere 12.8%. If the non-technical loss in LT would be 9.9%, the
balance 2.9% is technical loss in the entire LT distribution system. The calculation
advanced by the applicant is therefore absurd.

5.9 Some objectors representing general public have expressed the view that Transmission &
Distribution losses are even higher than the highest percentage of compensation existing for
payment in kind at the rate of 25%.

5.10 In reply to the above, the applicants stated that the transmission loss of 8.5% is based on
actual meter readings. The loss figure of 11% for 33KV and 11KV network are based on
losses considered by the Commission in Tariff Order dated. 24-03-2001. The contention of
the Objectors that the losses external to AP.Grid has no relevance is not valid since
APTRANSCO is purchasing power from Central Generating Units and other states through
transmission network external to AP. Grid.

Objections/ Comments on Surplus recovery & Cross-subsidy :


5.11 The project developers presently availing wheeling services made the following
submissions on charging cross-subsidy as part of wheeling charges.

(a) Any additional charges for cross subsidy are not acceptable as there is no justification
for charging this on industries wheeling energy.

(b) Cross-subsidy or related surcharge should be applied to those drawing power at


lower voltage.

(c) The new Electricity Bill, 2001 does not provide for charging Cross Subsidy from
Captive Power Units or end users of electricity produced in these Units .

(d) State Government should provide subsidy for electricity consumers having no paying
capacity.

Some representatives of general public vehemently supported that the burden of cross
subsidy should be borne by those who use the Network irrespective of voltage level.

5.12 In reply to the above contention of objectors, the applicants stated that the Discoms are
compelled to provide cross-subsidies to a large body of consumers who do not have the

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compelled to provide cross-subsidies to a large body of consumers who do not have the
capacity to pay cost reflective tariffs. The burden of cross-subsidy should be shared by all
those who use the network.

CHAPTER – VI
THE STAFF PRESENTATION AT THE PUBLIC HEARINGS

6.1 The staff of the Commission, in their presentation dealt generally with the conceptual framework
for the formulation of a wheeling tariff in the context of the transition towards commercialisation of
the transmission business. They referred in brief to the concept of Open Access Vs Limited
access, the methodologies for calculating the charges and limitations on their applicability due to
inherent data constraints. It was also clarified that the position presently prevalent in the state is
Limited Access where according to the licence granted, the Licencee can wheel electricity as per
the terms of the Licence granted to him by the Commission or otherwise only with the approval of
the Commission.

6.2 The Staff stated that typically the charges for the wheeling service comprise of:
· connection charges (to pay for the use of the assets, usually by way of a fixed charge
sometimes differentiated for voltage levels),

· use-of-system charges (to reflect network characteristics like congestion, time of day
etc),

· ancillary service charges (to recover costs of ancillary services such as system stability,
reactive power compensation, reserve power etc)

· variable charges (representing largely losses incidental to wheeling)

6.3 The different methods in vogue of charging for wheeling of electricity such as the Postage Stamp
method, the Megawatt-Mile Method and the Nodal Pricing Method were referred to by the Staff . The
Staff drew attention to clause 20 in part -IV of the Licence of APTRANSCO in regard to the basis for
determining wheeling charges.

6.4 On the question of Commission's jurisdiction to determine wheeling charges in respect of existing
bilateral agreements for wheeling services between power producers and the erstwhile APSEB or
the successor APTRANSCO, the Staff stated that wheeling charges, being in the nature of tariff, the
Commission should be considered to have full powers to revise them under section 26 of the AP
Electricity Reform Act and that the provisions in the existing agreements regarding charges for
wheeling do not constrain the Commission from revising the wheeling tariff in view of the
superceding legislation.

6.5 . The Staff further stated that the calculation of the wheeling charge should duly take into account
the principle that the entire network as it exists with all its features such as stability, spinning reserves
as well as losses is made available for the service of wheeling and that wheeling charges in the
prevailing context of "Limited Access" should reflect primarily use-of-network services provided to
wheeling customers and loss in the Network.

6.6 The staff stated that the losses occurring in the system being an inseparable component of any
wheeling service, such losses are to be borne without discrimination by all end users, the
consumers of the Licencee as well as suppliers/end-users of the wheeled electricity. The cost can
be recovered either in cash by its inclusion in the wheeling charge or in kind by way of delivering
energy net of losses to the recipient consumers. The Staff stated that in terms of Clause 20 of the
Licence which specified ---“to deliver such electricity, adjusted for losses of electricity to a
designated exit point “----, losses will have to be paid for in kind which means, on wheeling, the
energy to be delivered at the designated exit point shall be net of losses.

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energy to be delivered at the designated exit point shall be net of losses.

6.7 Given data constraints as exist at present, the Staff preferred the postage stamp method of
charging as a viable option pending detailed studies. A single part tariff (per Kwh) based on total
energy flows (including wheeled energy) in the network is feasible. Over time and with
improvement in data availability, the charge would have to be refined to provide for the costs
inherent in the mismatch between the time of generation (i.e. input into the system); and time of
consumption of energy (i.e. offtake from the grid) by the end users of the wheeling service giving
rise to balancing costs for the service provider. It was suggested by the Staff that system stability
charge & unscheduled interchange (UI) charge could be introduced once the ABT (Availability
Based Tariff of the Central Units) regime comes into vogue.

6.8 Adverting to the calculations presented by APTRANSCO in support of the wheeling charges of
Re.1/- per Kwh proposed, the staff stated that the denominator employed to calculate the rate per
Kwh should include wheeled energy also. The APTRANSCO's figure of 40,816 MU did not include
wheeled energy. Further, the rate of Rs.1.65 per Kwh employed for calculating the cost of losses
included the external wheeling and transmission costs incurred and that its inclusion again in the
computation (as done by APTRANSCO) resulted in double counting. Hence, the staff felt that the
external Transmission & Wheeling Charges should be excluded. In the Network costs reckoned in
the computation for Re.1/- (which, APTRANSCO claims, is as per the Commission's Tariff Order
of 24th March, 2001), credit had not been taken by APTRANSCO for non-tariff income in
abatement of expenses as done in the Tariff Order to arrive at the Revenue Requirement.

6.9 The Staff stated that the figure of 19.26 ps. / unit (surplus recovery) was not justified as no
quantification was done for services like reactive power compensation. The Staff also felt that
since suppliers of electricity were consumers of Licencee only to the extent of network usage,
they were not liable for a charge to account for Cross Subsidy. They also felt Cross subsidy
should arise only at the retail consumer level.

6.10. Regarding the arrangement proposed for sharing of revenue from wheeling services between
APTRANSCO and DISCOMs, the staff expressed reservations about the ratio ( of 25 : 75)
proposed as, according to the Staff, it was not supported by any data as well as the legal
implications in view of APTRANSCO and the DISCOMs being distinct legal entities.

6.11. On the issue whether the consumers of wheeled energy should be the "consumers" of
APTRANSCO or DISCOMS, the Staff stated that there is need to examine the matter from a legal
perspective.

6.12 In conclusion, the staff stated that the wheeling charges would have to be notified by the
Commission every year as part of the Tariff Notification and that the revised Wheeling Charges
should come into force from the Tariff Year 2002-03 as the revenue requirement of APTRANSCO
and the four DISCOMs for 2001-02 has already been met by the Commission. Further, if as a
matter of policy, the GoAP desired that any class or category of energy wheelers were to be
charged a lower tariff for wheeling, the difference would have to be met by GoAP as subsidy.

Chapter VII
RESPONSE OF APTRANSCO TO STAFF PRESENTATION

7.1 In it's response, APTRANSCO agreed with the Staff’s observation that Wheeling
customers were consumers of DISCOMs and stated that the characteristics of wheeling
customers were similar to industrial consumers. The wheeled customers/end users
should carry a similar burden of cross subsidy as applicable to other HT consumers.
They contended that had APTRANSCO included a comparable cross subsidy it would

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They contended that had APTRANSCO included a comparable cross subsidy it would
have amounted to 86 Ps./Unit. But comparable cross subsidy would have resulted in a
wheeling charge significantly higher than that originally requested in the Filing of
Prposed Tariffs(FPT). They pointed out that this could be well understood from the
following illustrative calculation.

A Cost of Service (Ps /unit) 80.74


B X APTRANSCO Units (MUs) 40,816
C Cost of service (AXB) (Rs. Crores) 3,295.48
Less
D Non Tariff Income (Rs. Crores) 333.43
E PGCIL Charges (Rs. Crores) 144.56
F Net cost of service to be recovered (C-D-E) 2817.49
G Wheeled Units (Mus) 2200
H Total units (B+G) (MUs) 43,016
I Cost of service/unit (F/H) (Ps/Unit) 65.50
J HT 1 Price (K+L) (Ps/Unit) 444
K Subsidy component (Ps/Unit) 229
L Cost of service (Ps/Unit) 215
M % Subsidy component (K/L*100) 107%
N Comparable subsidy (IxM) (Ps/Unit) 69.76
O Wheeling price with comparable
cross subsidy (I+N) (Ps/Unit) 135.26

7.2 The applicants stated that need for “in-kind" settlement appears to follow from interpretation
of licence language on adjustment. Adjustment can be made in two ways (i) by estimating
the value of losses and included in price; or, (ii) by reducing the estimate of delivered energy
to reflect losses. APTRANSCO in the interest of transparency chose to include value of
losses in the price of wheeling electricity.

7.3 APTRANSCO stated that Licencees filed FPT on 17-01-2001, where wheeling tariff of Re.
1/- per unit was included. Hon'ble Commission in its tariff order dated 24-03-2001 decided
to consider the issue of appropriate transmission / distribution wheeling charges in a
separate proceeding. APTRANSCO /DISCOMs subsequently applied on 8-10-2001. These
proceedings are essentially a continuation of earlier proceedings. Hence, the proposed
wheeling charge is essentially a request for the year commencing 01-04-2001.

CHAPTER VIII

COMMISSION ANALYSIS
8.1 The Commission recognises the need for a consistent methodology for fixing of wheeling
charges for power developers and their scheduled consumers ( end Users)keeping in mind
the ground realities in A.P.
8.2 In the light of the contentions and submissions of the Applicants, Objectors and others,
the following issues arise for consideration in the present proceedings.

(i) Whether the Commission has the authority to determine Wheeling Charges? Whether the
Commission is bound by the notifications issued by the GoAP or the terms of the Wheeling
Agreement signed with the APSEB prior to the Reform Act coming into force ?
(ii) Whether the application for determination of Wheeling Charges filed jointly by APTRANSCO
and DISCOMS is valid and maintainable?
(iii) Whether the project developers who avail the wheeling service, either for captive
consumption or for third party sales/purchases, should be treated as the customers of the
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consumption or for third party sales/purchases, should be treated as the customers of the
APTRANSCO or of the concerned Discom in whose area of supply the wheeled energy is
consumed?
(iv) If the project developers who avail the wheeling service are treated as the customers of
Discom in the area of supply, what should be the arrangement between the Discom and
APTRANSCO for the use of transmission system and what should be the arrangement
between the said Discom and other Discoms if the distribution systems of such other
Discoms are also used for the Wheeling of electricity?.
(v) What should be the method of Calculation of wheeling charges and the components to be
included therein? Whether it should be related to the voltage level at which the supply is
effected? Whether the technical and/or non-technical losses in the System below the level
of the voltage at which the service is availed should be included in the wheeling charges?
(vi) Whether the project developers availing wheeling services through the Transmission &
Distribution System in the State can be asked to contribute towards cross subsidisation in
the tariff that is applicable to the corresponding class of consumers of the Licencee?
(vii) Whether the Wheeling Charges should be determined for APTRANSCO and DISCOMS in a
consolidated manner and thereafter allowed to be shared in the proportion suggested by
the Applicants or whether such charges should be separately determined?
(viii) Whether the Wheeling Charges should be collected in cash or adjusted in kind or partly in
cash and partly in kind?
(ix) Whether the wheeling charges determined by the Commission can be given retrospective
effect from 1st April 2001 or in the alternative the wheeling charges can be annualised and
included in the balance period of the year 2001-02?

ISSUE NO. 1: Authority of the Commission to levy wheeling charges:

8.3 The act of wheeling is a service provided by the Licencee(s) to a customer of conveying
electricity from the place where the electricity is injected into the system to the place
where it is offloaded for consumption. Such conveyance is done through the transmission
system and/or the distribution system belonging to the Licencees concerned namely
APTRANSCO and DISCOMS. The charges for such services is a tariff within the meaning of
Section 26 of the Reform Act, 1998. Section 26 of the Reform Act, inter alia, reads as
under:

" 26 (1). The holder of each licence granted under this Act shall observe the
methodologies and procedures specified by the Commission from time to time in
calculating the expected revenue from charges which it is permitted to recover
pursuant to the terms of its licence and in designing tariffs to collect those
revenues."

The subsequent sub-sections in section 26 deal with details and other aspects concerning
the fixation of Tariffs of Licencees. The APTRANSCO and the DISCOMS are Licencees under
the Reform Act; APTRANSCO having been issued the Transmission & Bulk Supply licence
No.1/2000 dated. Jan 31, 2000 valid for 30 years and the four Discoms having been issued
the Distribution & Retail Supply Licences Nos. 12 to 15 dated 29 th Dec, 2000 valid for 30
years.

8.4 The explanation (b) under section 26 of the Reform Act defines the term “Tariff” as under:

“Tariff” means a schedule of standard prices or charges for specified services which
are applicable to all such specified services provided to the type or types of
customers specified in the Tariff notification”
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customers specified in the Tariff notification”

8.5 Wheeling is a service provided by the Licencees and the schedule of charges for
such wheeling services is a tariff within the meaning of the section 26 of the Reform
Act. Further, Section 11(1) (e) of the Reform Act reads as under:

” 11 (1) (e). to regulate the purchase, distribution, supply and utilisation of


electricity, the quality of service, the tariff and charges payable keeping in view both
and interest of the consumer as well as the consideration that the supply and
distribution cannot be maintained unless the charges for the electricity supplied are
adequately levied and duly collected; "

8.6. The Reform Act has been enacted with the purpose of vesting in the Commission all
regulatory powers concerning the electricity industry in the State including the powers to
adjudicate on tariffs and related issues. This is stated specifically in the Statement of
Objects and reasons of the Reform Act. The Preamble to the Reform Act states as under:

“An Act to provide for the constitution of an Electricity Regulatory Commission,


restructuring of the Electricity Industry, rationalisation of the generation, transmission,
distribution and supply of electricity avenues for participation of private sector in the
Electricity Industry and generally for taking measures conducive to the development and
management of the Electricity Industry in an efficient, economic and competitive manner
and for matters connected therewith or incidental thereto.”

8.7 It has been held that the power to regulate is wide and includes the powers to determine
rates and charges. In V.S.Rice and Oil Mills v. State of Andhra Pradesh AIR 1964 SC
1781, the Hon’ble Supreme Court held as under:

Page 1787 Para 20 “…………The word “regulate” is wide enough to confer power on
the respondent to regulate either by increasing the rate or decreasing the rate, the
test being what is it that is necessary or expedient to be done to maintain,
increase, or secure supply of the essential articles in question and to arrange for
its equitable distribution and its availability at fair prices. The concept of fair
prices which S.3(1) expressly refers does not mean that the price once fixed must
either remain stationary, or must be reduced in order to attract the power to
regulate. The power to regulate can be exercised for ensuring the payment of a
fair price, and the fixation of a fair price would inevitably depend upon a
consideration of all relevant and economic factors, which contribute to the
determination of such a fair price. If the fair price indicated on a dispassionate
consideration of all relevant factors turns out to be higher than the price fixed and
prevailing, then the power to regulate the price must necessarily include the power
to increase so as to make it fair. ………………..”

In Deepak Theatre, Dhuri v. State of Punjab 1992 Supp (1) SCC 684 at Page 687 Û
AIR 1992 SC 1519. The Hon’ble Supreme Court held as under

Page 687 Para 3 - “It is settled law that the rules validly made under the Act, for
all intents and purposes, be deemed to be part of the statute. The conditions of the
licence issued under the rules form an integral part of the statute. The question
emerges whether the word regulation would encompass the power to fix rates of
admission and classification of the seats. The power to regulate may include the
power to licence or to refuse or to requiring taking out a licence and may also
include the power to tax or exempt from taxation, but not the power to impose a
tax for the revenue in rule making power unless there is valid legislation in that
behalf. Therefore, the power to regulate a particular business or calling implies
the power to prescribe and enforce all such proper and reasonable rules and
regulations as may be deemed necessary to conduct the business in a proper and
orderly manner. It also includes the authority to prescribe the reasonable rules,
regulations or conditions subject to which the business may be
conducted…………………”[emphasis supplied]

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In Harishankar v. U.P. State Electricity Board AIR 1974 All 70 at para 5, the Allahabad High
Court held as under:

Para 5 "….Thus the terms "tariff" includes within its ambit not only the fixation of rates but
also rules and regulations relating to it. When the electrical supply is being made on the
footing that the consumer will pay the minimum guaranteed charges, this charge is one of
the terms of conditions for the supply. By it the supplier ensures the receipts of a
minimum amount for the supply of electricity. In a sense the fixation of this charge would
be included in the fixation of rates for the supply of electricity. The word "tariff" in Section
49 (1) appears to us to include the power to fix minimum guaranteed charges".

8.8 In terms of section 26 of the Reform Act read with the regulatory powers under section 11
of the Reform Act, the Commission has full power and authority to determine the wheeling
charges. The Commission therefore holds that the Commission has the authority under the
Reform Act to determine and decide on the Tariff and terms and conditions for the
provision of wheeling services by the Licencees.

8.9 As held in V.S. Rice Mills case, (supra) the Commission as the regulator and further being
vested with the statutory functions under the Reform Act has the authority to deviate from
the charges and also the terms and conditions contained in the Wheeling Agreements
earlier signed by APSEB and, for the same reasons from the earlier notifications issued by
the GoAP. It is the Commission’s duty to ensure that the charges for wheeling are levied in
a fair and just manner and are equitable and economical.

ISSUE NO. 2: Maintainability of Joint Application

8.10 The present application has been filed by AP TRANSCO and DISCOMS jointly. In the
present application the Commission is determining the principles on which wheeling charges
are to be calculated and applied. For reasons stated hereunder, the Commission is not
inclined to determine the wheeling charges for the year 2001-02 as the Commission is of
the opinion that in the facts and circumstances of the present case, there should be no
retrospective operation of the Wheeling Charges determined. The wheeling charges for the
year 2002-03 shall be determined along with tariff order for the said year. For reasons
explained in this order and based on the methodology adopted for calculation of Wheeling
Charges more fully explained later, the Commission is not inclined to allow apportionment
of the wheeling charges between APTRANSCO and DISCOMS in a consolidated manner as
suggested by the applicants.
8.11 The objection to the maintainability of the joint petition by APTRANSCO and DISCOMS
needs to be considered in the light of the above. There can be no legal objection as such
to the maintainability of the joint petition so long the Commission proceeds to determine
the issues taking into account the fact that APTRANSCO and DISCOMS are independent
entities. The Commission will proceed on the basis that though DISCOMS are wholly
owned subsidiaries of APTRANSCO at this point of time, APTRANSCO and DISCOMS are to
be treated as separate entities and determine the wheeling charges accordingly.
8.12 It is also relevant to note that the determination of wheeling charges with which we are
concerned at this stage relate to an integrated Transmission & Distribution system in the
State. The system was entirely owned and controlled by Andhra Pradesh State Electricity
Board(APSEB) initially and after the Reform Act it has come into the control of APTRANSCO
till 31.3.2001. The present application is the first of its kind to determine the applicable
wheeling charges fro the transmission & distribution system.
8.13 In the circumstances, the objection as to the basic maintainability of a joint petition by
APTRANSCO and DISCOMS cannot be sustained. In any event such an objection is
technical in nature and allowing the joint petition to be maintained will have no adverse
effect so long in substance as the Commission proceeds to determine the issues treating
APTRANSCO and DISCOMS as independent units and the determined tariff is fair to the
consumers availing wheeling service..

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consumers availing wheeling service..

ISSUE No 3. Whose customers?

8.14 The transmission & distribution of electricity is technically an integrated activity as far as
the end user is concerned . The Wheeling of electricity from the place where it is injected
into the system to the place where it is consumed is to be considered as one indivisible
activity. This cannot be divided and looked as if an identifiable part of the activity is carried
by one licencee and the remaining identifiable part is carried by another licencee. This is
so as energy is supplied on displacement basis and it cannot be said that the very energy
pumped into the system at one place is delivered at another place. The energy from the
generating units, whether it is for sale and supply to APTRANSCO and then to Distribution
Licencees and then to the Consumers of the Distribution Licencees or directly sold to the
consumers wheeled through Transmission and/or the Distribution System, gets mixed in
the system and loses the relationship to the source. The energy eventually supplied to the
customer cannot be identified as having passed through only an identified part of the
transmission and/or distribution system or at an identified voltage level. In Wheeling, what
really happens is that the licencee supplies the wheeled consumer, energy in compensation
for the energy received into the system from the generator availing the wheeling service.

8.15 In view of the above it is not proper to provide for multiple contracts or multi-party
agreements in regard to the wheeling of energy. The wheeling agreement should
necessarily be between the project developer and one identified licencee in the system
8.16 Invariably the person who consumes the electricity wheeled has a parallel arrangement
with the Discom in the area of supply for the supply of electricity by the Licencee. There
do not exist two systems comprising of power lines and equipment, namely one for the
normal Licencee’s supply and the other for the wheeled energy. It is an integrated system
and it is not possible to identify the energy actually consumed as the one sold and supplied
by the Licencee and the other supplied by another and wheeled by the Licencees.
8.17 The allocation of recorded demand and energy between Licencee’s supply and wheeled
energy is done by a method agreed between the parties to the agreement. Such recording
is done by the Discom of the area of supply, even where the supply is effected directly
from the transmission system. For the electricity sold and supplied by the Licencee the
person supplied will be the consumer of Discom and not of the Transmission Company
notwithstanding that the supplies are made from the Transmission System directly.
8.18 It is therefore natural, just and proper that the project developer who avails the wheeling
service is also treated as the customer of Discom of the area where the electricity is
consumed even when the agreement is signed with the Generating Unit and irrespective of
the voltage level at which the supply is effected.
8.19 The above scheme is simple and implementable. In the scheme, there will be an identified
Discom which is already serving the person who will consume the electricity wheeled. The
Discom of the area of supply can in turn have arrangement with APTRANSCO and other
Discoms for the use of their system. There is no need to have tripartite or multiple
agreements with APTransco or Discoms for each of the wheeled consumers.
8.20 Accordingly the project developer who desires to wheel power will have agreement only
with the Discom of the area where the wheeled energy is consumed, irrespective of
whether the wheeling would involve the use of Transmission System of APTRANSCO or the
use of the Distribution System of other Discoms.

ISSUE NO 4: Nature of Arrangement between APTRANSCO and Discoms and


between Discoms:

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8.21 The erstwhile Andhra Pradesh State Electricity Board (APSEB) had built the transmission &
distribution system and network essentially for the purpose of the distribution of electricity
in the state in discharge of the duties and functions under section 18 of the Electricity
(Supply) Act, 1948. This is a public utility service. Over the years investment has been
made in the system with the use of money contributed by public at large who are the
consumers of the APSEB and the GoAP. The activities of distribution and supply of
electricity by the Licencee-Discoms (which have succeeded to the above function of the
APSEB.) therefore, have the principal claim over the Transmission & Distribution Capacity
and network which now vest in APTRANSCO/ Discoms.
8.22 The distribution system is owned by the Discoms. The Transmission System vests in
APTRANSCO under the reorganisation of APSEB effected pursuant to the provisions
contained in the Reform Act. It is necessary to recognise this salient aspect and provide for
the use of the transmission system of APTRANSCO by the Licencee-Discoms. An exception
to be made is to the extent that the transmission capacity is used for inter state
transmission. Under the Electricity Laws as existing today namely the provisions of the 1910
Act, 1948 Act and the ERC Act (Central Act) and the Reform Act, the Inter State
Transmission falls within the jurisdiction and control of the Central Electricity Regulatory
Commission .
8.23 In accordance with the above, APTRANSCO should enter into an agreement with each of
the Discoms for the use of transmission system by the Discoms. Since the Discoms are
independent companies, it is important that an appropriate arrangement for the use of the
transmission system and payment of transmission charges are finalised and filed with the
Commission.
8.24 The Charges payable by Discoms to APTRANSCO shall be part of the consolidated charge to
be determined by the Commission while deciding on the Annual Revenue Requirements of
APTRANSCO.

8.25 Once the Discom has paid for the Transmission system for Wheeling services,it is entitled
to utilise the Transmission System for the retail supply of electricity to its consumers or to
wheel the electricity for other customers. The commission can determine the wheeling
charges payable to Discoms by such customers.

Arrangement between Discom


8.26 In addition to the utilisation of the transmission system of APTRANSCO, in a special case, a
Discom may also require the utilisation of the distribution system of another Discom to
provide the wheeling service required by its customers. In such an event, the Discom
should pay an appropriate charge to the other Discom as may be approved by the
commission from time to time and such charges shall be a pass through in the wheeling
charges of the Discom to its customers for whom such services are availed from other
Discoms.

ISSUE NO 5 Calculation of wheeling charges.


8.27 The wheeling charges should be calculated for wheeling the contracted energy namely, the
number of units. The project developers availing the wheeling service should pay realistic
cost of such services.
8.28 The contention that the system losses only upto the voltage level at which the electricity is
supplied to the end user should alone be taken for determining the wheeling charges is
apparently an attractive argument but an over simplification of the matter in issue. In an
integrated system where electricity is supplied on displacement basis rather than direct
conveyance of the particular electricity generated, the technical losses upto the voltage
level at which the electricity is delivered alone cannot be considered. The technical losses
of the total system need to be taken into account as it is impossible to determine
electricity from which source is being supplied to which particular customer. The electricity

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electricity from which source is being supplied to which particular customer. The electricity
from all sources gets combined in the system and loses its identity
8.29 Similarly, non-technical losses in the system are also to be taken into account as these are
also an integral part of the system. Although, apparently, the delivery of electricity at say,
132 KV to the customer should cover the loss upto 132 KV only but a realistic approach
should be that losses in transmission & distribution system as a whole ( which as
mentioned above is an integrated system) should be taken into account while calculating
the amount of energy to be supplied to the customer. If the entire system losses are not
taken into account for determining the charges for wheeling, it will be discriminatory
between similarly placed persons who are getting electricity by the use of the same
Transmission & Distribution system and are bearing the cost of losses in Transmission &
Distribution System. It will not be just and proper for the Licencee’s consumers to pay for
all such losses in the system and for the project developers availing the wheeled services to
pay for the use of the system only without sharing such losses in the system. The use of
the system cannot be isolated from the losses in the system as they form an integral part
of the system. The system losses, whether technical or non technical, should be borne by
all persons using the system. Incidentally, the terms of licences issued to APTRANSCO and
DISCOMS specifically refer ( para 20 of the T&BS licence and para 18.5 of the D & RS
licence ) to “ deliver such electricity, adjusted for losses of electricity, to a designated exit
point.” ( emphasis supplied ).
ISSUE No 6: Adjustment for cross subsidy
8.30 The technical and non technical losses in the system have a nexus to the use of the
transmission & distribution system by the project developers who seeks to avail the
wheeling services and therefore are to be taken into account in determining the charges for
wheeling services. The element of cross subsidisation has no nexus to the Transmission &
Distribution System as such and arises out of subsidisation of one class of consumers by
another class which is really an economic issue. The element of cross subsidisation cannot
therefore be taken into account while determining the Tariff or charges for wheeling.

ISSUE No. 7: System of Sharing of Wheeling charges:


8.31 As mentioned under issue No 4, the project developer who wishes to avail the wheeling
services will contract with the Discom in whose area of supply the energy to be wheeled is
consumed and pay the charges to such Discom. There will be no arrangement between
such project developers and APTRANSCO or other Discom. It will be for Discoms and
APTRANSCO to have arrangement between themselves in regard to the use of the system.
There will therefore be no apportionment of wheeling charges as such between
APTRANSCO and Discom as suggested by the applicants.

ISSUE No. 8: Wheeling charges – Cash or in kind

8.32 While some of the Objectors opined that payment in kind was apt as it took care of
inflation, the licencees felt the payment in kind was not compensating their costs and that
there was need to changeover from an in-kind regime to an in-cash regime.. The
Commission feels that while there could be no objection for compensation of losses in kind,
there would be no rationale for continuing with payment in kind in respect of other costs
etc.
8.33 It will be appropriate to adjust the losses in the system in kind rather than in cash. This
will also be in line with the terms of the licences ( paras 20 and 18.5 of the T & BS and D
& RS licences respectively) which lay down that the licencee shall “deliver such electricity,
adjusted for losses of electricity, to a designated exit point”. The losses in the system are
determined by the Commission on an annual basis and the quantum of wheeled electricity
to be supplied can be reduced by the extent of the losses determined by the Commission
which will be applicable to Tariff for both the licencee’s consumers and the consumers of
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which will be applicable to Tariff for both the licencee’s consumers and the consumers of
the wheeled energy. This will also avoid incremental cost on account of purchases to be
made by DISCOM. If the losses are adjusted in cash, it would mean that the DISCOM is
required to supply the full quantum of electricity collected by it from the supplier, to the
wheeled consumer. The DISCOMS will have to acquire equivalent power from high cost
generating companies to cover the shortage in supply of power against the losses.
8.34 The remaining part of the charges for wheeling (namely the cost of network and other
charges) should be paid in cash.
8.35 In accordance with the above there will be two types of charges for Wheeling Services
namely (a) Adjustment in kind for losses in the system and (b) cash payment for the use
of network and other charges.

ISSUE No 9: Retrospective Effect:

8.36 The Applicants could have filed details in support of the wheeling charges sought by them
immediately after notification of the tariff for the year 2001-02. The Applicants filed the
affidavit instead only in October and that too without adequate particulars. It will not
therefore be appropriate to give retrospective effect to wheeling charges at this
stage.Further wheeling charges have already been collected in accordance with the earlier
tariff order and the Annual Revenue Requirement of the licencees also has been met. .

MISCELLANEOUS

8.37 Wheeling Charges should be applied to all persons who avail the service of wheeling
without discrimination. The Non Conventiional Energy Developer should also pay the
wheeling charges like others.

Chapter- IX
Tariff Structure-Wheeling Charges
. 9.1 Para 20 Of the Bulk Supply Licence and Para 18.5 of the Distribution Licence lay down that
the Licencee shall make such arrangements for the use of the Transmission (Distribution)
systems by third parties as specified in the relevant Para. and, "to deliver such electricity,
adjusted for losses of electricity, to a designated exit point". Further, only developers to
whom consent has been accorded by the Commission will be entitled to wheel their energy
using the network of the Transmission & Distribution companies.
9.2 Further under Section 26 of the Reform Act and as per the terms of the licences, the
Commission has to fix tariffs which include wheeling charges in accordance with the
accepted financial principles and in line with its tariff philosophy. The methodology for fixing
wheeling charges will therefore be guided by Sec 26 and Sec 11. (1) (e) of the Reform Act.
9.3 Data availability constrains the design of the wheeling charges. Part of the reason for this
perhaps is that for too long the Power Sector had functioned under a vertically integrated
structure which lacked modularity. The Licencees have to get over this fixation, if the
complexities of wheeling tariffs are to be unravelled..The Commission notes that there are
a number of methods of pricing wheeling charges in vogue all over the world like Flat Fee,
Postage Stamp, Proforma Tarriffs, Megawatt-Mile, Contract Path, Rated System Path,
Locationally based Marginal costing, etc. The Commission also recognises that even with
extensive data available (as in the case of advanced countries), transmission pricing is still
based on a number of assumptions . For these reasons, there have been divergent views
on the rationale (or otherwise) behind each of the transmission pricing methodologies in
vogue all over the world some of which are mentioned by the staff in their presentation.
There is a constant search for a universally acceptable wheeling tariff design.
9.4 In a the contract path or a Megawatt mile approach, the determination of a notional
pathway between the Wheeling Generator and end-user of Wheeled Power and the
delineation and identification of entry points and delivery points at different voltages and in
respect of different Licencees existing enroute is necessary. Development of such a

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respect of different Licencees existing enroute is necessary. Development of such a


notional pathway for developing Megawatt Mile charges for each of the parties using the
wheeling service is currently not feasible, particularly as the end users are not fixed and are
changed often. Also the network that was built for an integrated public utility has yet to
develop the contours of unbundled business entities in terms of asset demarcation in
physical and financial terms.
9.5 Since, in an integrated transmission network, power flows unpredictably and is for
convenience generally reckoned to follow the principle of displacement, to draw up
hypothetical transmission lines between each developer and each of its many customers
is difficult. Sophisticated data and load flow studies, strengthening of Transmission &
Distribution lines, interface metering with better (0.2 accuracy class) meters needs to be in
place before attempting to develop complex wheeling tarriffs suited to each project
developer, its consumer and the wires businesses. Such complex computations may not be
feasible at present particularly when there are many retail end users of the Wheeled
Power. So, while the Commission has paid attention to presentations which have
highlighted the multifarious methods such as nodal prices generally adopted in
sophisticated transmission networks, it feels there is much to be said in favour of fixing
network charges for the present on simple principles which enable laying the foundations
for elaborate determination of Wheeling Tariffs later taking into view the complexities of
power sector business in A.P.
9.6 For the above reasons the Commission intends to take the simple model proposed by the
licencees with appropriate changes as the basis for finalising the wheeling tariff. As already
indicated above the wheeling charges to be fixed will not be given retrospective effect as
claimed by APTRANCO but will be implemented only from the year 2002-2003 onwards.
Subsequent wheeling tariff proposals will build on the principles applied herein but will
seek to evolve into modular tariffs reflecting the interests of the various stakeholders
more explicitly. Similarly the issue of Capacity charges will be considered in future. At this
stage the Commission will proceed on the basis of energy contracted to be wheeled.

Network Charges;

9.7 The Commission staff and several Objectors felt that the network and other charges should
have been allocated not just over the energy purchases of APTRANSCO, but over the
entire energy handled by the system. Managing Director, APCPDCL, in his submission on
20-12-2001 requested the Commission to accept this cost as the same cost was applied for
arriving at the tariff for various categories of consumers in its tariff order for 2001-02. But
the objectors receiving supply at EHV Level feel that network costs relating to DISCOM
system should not be passed onto them. They also plead that the charge should vary
according to the voltage level at which it is delivered. The Commission feels, as already
discussed, that there is force in the argument that the allocation of network and other
charges per unit shall be over the entire system (grid) energy. The network costs will
therefore be distributed over the entire system. The Commission also feels that the External
Wheeling Charges can also be included in the wheeling charges for the reason that the
energy reaching the wheeled consumer is from the grid pool and external wheeling
charges are part of the common costs to be borne by all users of the network including
those availing the wheeling service.

Surplus Recovery

9.8 The Applicants have sought to charge a surplus of 19.26 ps/kWH for the year 2001-2002
as an adjustment for the differences in embedded costs and Long Range Marginal Costs.
APTRANSCO also pointed out that the cost to serve wheeled consumers was higher than
that to serve the native loads. The Licencees also sought the surplus recovery to cover
other costs like reactive power compensation etc., besides cross subsidy. The Commission
staff felt that the surplus recovery was not justified for want of quantification.
9.9 In view of the methodology adopted by the Commission namely determining the wheeling
charges accounting for all system losses and not accepting the loading of the cross subsidy
element and in the absence of detailed calculations surplus recovery of 19.26 ps/kWH is

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element and in the absence of detailed calculations surplus recovery of 19.26 ps/kWH is
not allowed by the Commission.
9.10 However it is noticed that ,the Power Trading Corporation maintains a margin for the
balancing services rendered by it. In any T & D system, frequency and voltage stability
requires matching between consumption of energy (both active and reactive ) and
generation of energy by the system operators Besides ensuring this energy balancing, the
Licencees render various other valuable services like reactive compensation, emergency
power, continuous network access, metering & billing and other consumer services etc., to
the wheeled consumers and their project developers.. In this context the Commission
prefers to introduce an appropriate charge as Balancing and ancillary service charge (as
sought for by some objectors representing general public and the staff )in the case of this
and the future tariff determinations. Keeping all these unrecovered costs and various
services not included in other charges mentioned above (and not cross subsidy) in view
and for reasons mentioned hereinabove for the present the commission allows a charge
of 10ps per kWh on the wheeled energy as Balancing and ancillary charges.
9.11 The Network charges together with the system losses are determined in the Tariff Order for
the year 2002-2003. Now that it has been decided not to give retrospective effect to the
wheeling charges determined herein, it is proposed to fix the wheeling charges based on
the network charges and losses finalised in the tariff order for 2002-03. Accordingly the
network charges and system losses as finalised by the Commission in the Tariff Order for
2002-2003 are taken into account for fixing wheeling charges for the year 2002-2003
9.12 The wheeling charge leviable from 1-4-2002 for the F.Y. 2002-2003 is accordingly worked
out as below. .
Calculation of Wheeling Charges for 2002-03 :

a) In cash :

Particulars of Expenditure Amt. Rs.


Crs
Wages and Salaries 490.65
Administration and General 105.20
expenses
Repairs and Maintenance 185.66
Rent Rates & Taxes 5.13
Approved Loan Interest 560.31
Security deposit interest 31.37
Legal Charges 0.97
Audit and other Fees 2.23
Depreciation 508.59
Other Expenses 39.30
Contribution to staff pension 64.95
and gratuity
Contribution to Contingency 21.45
Reserve
Sub Total of Expenditure 2015.81
Reasonable Return 82.37
Total Gross Revenue 2098.18
Required
Less Non Tariff Income 529.86
NET REVENUE 1568.32
REQUIREMENT

Million Units ( Gross) 41954 (Discoms 39259


+ Wheeling 2695)

Rate in
Paise
Network Charges including 37ps/kwh (1568.32 Crs. /
reasonable return 41954 MU)

Wheeling charges (External) 3ps/kwh (Based on


Information)

Balancing and ancillary Charges 10ps/kwh

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Total Wheeling Charges in Ps/Unit 50ps/kwh ( Total of above three


charges)
.
b) In kind:
In addition, wheeling charges in kind of 28.4% of energy input by the project developer
into the Licencee’s grid being the system loss are leviable.

General Conditions for wheeling charges.


9.13 The application for Wheeling Charges will be made annually with the filings of Annual
Revenue Requirements by the Licencees and the charges will be adjusted in relation to
the approved network & other costs and losses projected in the filings and as accepted by
the Commission.
9.14 Wheeling charges are applicable uniformly to all project developers. The network and
balancing & ancillary charges will be recovered in cash and the losses in kind.
9.15 In case the GOAPdesires to allow wheeling of power to any person/s at lesser rates than
prescribed by the Commission, they can do so only if they agree to compensate the
respective licencees for the loss of revenue.
9.16 The licencees are required to submit the tariff filings based on embedded costs as well as
marginal costs as per the guidelines issued by the Commission, in regard to the future
filings for wheeling tariffs.
9.17 This order will apply uniformly to all classes of users of wheeling service including Non-
conventional Energy Sources and irrespective of voltage level of connection of developer
or his end user..

This Order is signed by the Andhra Pradesh Electricity Regulatory Commission on 24 March,
2002.These charges will be effective from the 1st of April 2002
Annexures: A to D

Sd. Sd. Sd.


(A.V.SUBBARAO) (D.LAKSHMI NARAYANA) (G.P.RAO)
MEMBER MEMBER CHAIRMAN

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