APERC Virtually Turns Down APGENCOs Appeal

New Delhi | Updated: Mar 29 2004, 05:30am hrs
The verdict is finally out. The Andhra Pradesh electricity regulatory commission (APERC), while making some concessions on the appeal made by Andhra Pradesh Generating Corporation (APGENCO) to rescue the company and prevent it from heading to bankruptcy, has turned down most of its proposals pertaining to the operations of the company.

The commission, in a tersely worded order issued recently, has in a specific case even pointed out that the commission expects APGENCO to exercise proper control over its expenditure instead of claiming the actual expenditure as pass-through.

Sources indicated that while the commission was right when it takes individual issues, when all issues are put together, they do hit the corporation. In fact, sources said that APGENCO may again appeal to the commission soon.

APGENCO, in its appeal to the commission and the state government in December last year, indicated that instead of making profits in the region of Rs 300 crore, the present pricing policy adopted by the state government would result in the company incurring losses of over Rs 2,000 crore by 2006.

The issues here pertained to the treatment of pension liabilities and vidyut bonds, operation & maintenance expenses, depreciation provisions as well as payment of fixed charges for the Srisailam left bank power house (SLBH).

On the Srisailam project, the commission, citing hydrological conditions, says that payments would be made with the consent of the commission.

On the treatment of pension liabilities and vidyut bonds, APGENCO stated that the depreciation amount is not adequate to repay the loan amount and discharge the interest liability of vidyut/pension/PF bonds. Return on equity (RoE), which is to be retained by the enterprise, is not to be used to meet any liability. The servicing of the pension/PF liability was placed on APGENCO on the clear understanding that the required funds will be generated though tariff.

APGENCO had specifically stated that it was forced to borrow (around Rs 1,080 crore) because some dues from the state government were not paid.

The commission, however, feels that it allowed depreciation and RoE on the basis of revalued assets and the matching liability. RoE on revalued assets enables APGENCO to service its other liabilities such as pension funds/vidyut bonds. It goes on to add that even though RoE was not a component in the signed power purchase agreement (PPA), the commission felt it appropriate to introduce this component along with other norms into the PPA. It further adds that by facilitating APGENCO to meet the interest liability of vidyut/pension/PF bonds by providing return and depreciation on the up-valued numbers, the commission balanced the interest of both the generator and the consumer.

The commission, however, stated that any liability on account of interest on pension bonds in excess of that specified would be allowed as a pass through in the tariff of APGENCO on a year to year basis.

On the issue of O&M expenses, as against the requirement of Rs 437.38 crore that APGENCO placed for 2004, the commission has permitted expenses amounting to Rs 357.92 crore. But based on the increase in expenses (employee etc.), it has allowed an inflation indexed escalation factor of 4 per cent.