Assessment of Cost of Service to Agriculture

Consumers

New Delhi

June 17, 2010

Structure of Presentation

Module 1: Introductory

Module 2: Agricultural background of utilities

Module 4: Model for determination of cost of service

Module 5: Conclusions

Module 3: Important Consideration in assessing agriculture CoS

Module 1

Introductory

Key objective of the study

To formulate methodology to determine the cost of service for agricultural consumers and examination of issues related to it taking into account quality of supply, including hours of supply, voltage fluctuations, reliability of supply etc.

Selection of utilities

Utilities selected have significant agricultural load

Approach to the study

Selection of Utilities

Development of Model

Finalization of Model

Andhra Pradesh

Karnataka

Gujarat

UGVCL

PGVCL

APCPDCL

Haryana

BESCOM

APNPDCL

UHBVN

National & International Literature Review

Identification of Data Requirements

Developing an Excel BasedModel

Improvising Model with feedback from FOIR Standing Committee

In consultation with

Standing Committee

Respective SERC

Module 2

Agricultural background of utilities

Power Consumption in Agriculture sector

Data sources of 2007/08

Sources of irrigation in States

Share of power consumption in agriculture

Tube wells forms important source of irrigation in all states which consumes substantial quantum of power supply.

Agriculture sector forms a substantial part of the total

power consumed

30%

48%

24%

57%

36%

50%

0%

10%

20%

30%

40%

50%

60%

APCPDCL APNPDCL BESCOM UGVCL PGVCL UHBVN

36%29%

47%

18%

10%

5%

1%

1%

35%

27%

52%

29%

16%

11%

51%

3%

28%

1%

0%

20%

40%

60%

80%

100%

Andhra Pradesh Karnataka Haryana Gujarat

States

Canals Tanks Tubewells Other wells Other sources

Module 3

Important Consideration in assessing agriculture CoS

Important considerations in assessing Agriculture CoS….i

Agriculture gets supply during odd hours of the day In most cases agriculture category gets supply during odd

hours Few exceptions are there. E.g. UGVCL- Time schedule for supply to

agriculture is announced weekly and is divided into various group which receives 8 hours of power during the day on rotational basis

Administered peak for agriculture Usually agriculture category does not receive round the

clock supply. Supply is regulated and rostered leading to “Administered Peak”

Flexibility in usage hours could further increase class peak and coincident peak

Important considerations in assessing Agriculture CoS….ii

Low growth of agriculture power demand Growth in agriculture consumption lower than other

categories Higher cost of power purchase due to growth of overall

demand need not be allocated to agriculture

Poor quality of power supply to agriculture Often characterised with poor voltage profile and

unreliable supply Tariff design for agriculture consumers should take this

into consideration

Important considerations in assessing Agriculture CoS….iii

Diversity in agriculture power demand over the year Wide variations in demand across seasons &cropping pattern Methodology to determine CoS to reflect the seasonality in

agriculture demand

Estimation of losses incurred in supplying to agriculture category Agriculture category has substantial unmetered consumption Losses are not known appropriately (including the breakup in

terms of technical and commercial component) Proper treatment to losses in methodology for assessing CoS

Module 4

Model for determination of costof service

Model for Determination of CoS

Functionalisation of Costs:

Power Purchase

Transmission

Distribution

Classification of Costs:

Demand

Energy

Customer

Sample Feeder Data

Derivation of Load Curve

Class Load Factor

Estimation of Coincident Peak

Block Approach for assessing energy component of power purchase

Allocation of Costs to agriculture category

Estimation of cost of supply to agriculture consumer category

Estimation of Cross Subsidies

Functionalisation of Costs:

Power Purchase

Transmission

Distribution

Classification of Costs:

Demand

Energy

Customer

Sample Feeder Data

Derivation of Load Curve

Class Load Factor

Estimation of Coincident Factor

Estimation of Coincident Peak

Block Approach for assessing energy component of power purchase

Allocation of Costs to agriculture category

Estimation of cost of supply to agriculture consumer category

Estimation of Cross Subsidies

Information Requirement Utility system load details Power purchase details (base year and relevant year) Energy details of the utility Profit & loss accounts of the utility Balance sheet and its respective schedules of the utility Revenue details of the utility Detailed composition of all costs incurred by the utility Details of technical and commercial losses in agricultural category Voltage level wise classification of cost Load data of the sample feeders

Sources for Data Collection

Secondary sources such as Tariff orders, Profit & Los Accounts, Trial balance, Balance sheet etc.

Discussions with the concerned utilities and State Electricity Regulatory Commission.

Load studies are based on sample survey in consultation with the concerned utilities.

Step 1 - Functionalisation of costs

Process of dividing the total cost of the distribution utilities on basis of the functions performed - power purchase, transmission and distribution

Power Purchase FunctionAll costs related to purchase of power; inclusive of in-house generation cost, power purchase through long term, short term power purchase contracts, trading and unscheduled interface mechanism.

Transmission FunctionAll costs associated with the transfer of power from power plant to boundaries of utility; predominantly fixed costs

Distribution FunctionAll costs associated with the transfer of power from the transmission system through the distribution system to the consumer (end user); inclusive of costs incurred by the utility in activities such as R&M,

A&G, and employees related expenses etc.

Costs breakup between different functions

Source: Annual Report of 2007/08 of respective utilities

Power Purchase costs forms about 75-85% of the total utility cost

Transmission cost forms about 5-10% of the total utility cost

Distribution cost forms about 10-15% of the total utility cost

0%

20%

40%

60%

80%

100%

APCPDCL APNPDCL BESCOM UGVCL PGVCL UHBVN

Power Purchase Transmission Distribution

Step 2 - Classification of costs

Cost

Classification

Explanation

Demand Fixed in nature

Energy Vary with volume of energy consumed

Customer Depend on number of consumer served

Explained in next few slides for one utility- UGVCL

Functions Cost Classification

Power Purchase Demand Related

Energy Related

Transmission Demand Related

Distribution Demand Related

Energy Related

Customer Related

Classification of Power Purchase & TransmissionIllustrative example- UGVCL- 2007/08

Functions Rs Cr Demand Energy

Power Purchase 2700 32.88%(Rs 888 Cr)

67.12%(Rs 1812 Cr)

Transmission 231 100%(Rs 231Cr)

0%

Power Purchase cost is classified into fixed and variable costs in the ratio as stated in the tariff order

Transmission cost being fixed in nature is classified as demand cost

Classification of distribution costsIllustrative example- UGVCLCosts related to Distribution function are first classified voltage wise and thereafter based on the nature of costs based on the discussion with the officials of the utility

DistributionDemand Energy Cus. Demand Energy Cus. Demand Energy Cus. Demand Energy Cus.

R&M 81% 10% 9% 52% 10% 38% 20% 0% 80% 65% 9% 26%Employee Costs 70% 0% 30% 70% 0% 30% 70% 0% 30% 70% 0% 30%A&G expenses 50% 0% 50% 50% 0% 50% 50% 0% 50% 50% 0% 50%Other debits 100% 0% 0% 100% 0% 0% 100% 0% 0% 100% 0% 0%Prior period items 100% 0% 0% 100% 0% 0% 100% 0% 0% 100% 0% 0%Interest on WC 80% 0% 20% 56% 44% 0% 11% 52% 37% 62% 27% 11%Depreciation 80% 0% 20% 80% 0% 20% 72% 0% 28% 79% 0% 21%Interest & Financial Charges 80% 0% 20% 80% 0% 20% 72% 0% 28% 79% 0% 21%Income Tax & RoR 80% 0% 20% 80% 0% 20% 72% 0% 28% 79% 0% 21% Expenses capitalised(Interest and Finance Charges) 80% 0% 20% 80% 0% 20% 72% 0% 28% 79% 0% 21%

Distribution- 11 KV Distribution- LT net work Retail supply Distribution-Total

Classification of distribution costs (in Rs Cr)Illustrative example- UGVCL

Distribution Costs 11KV LT network Retail supply

Demand Energy Customer Demand Energy Customer Demand Energy Customer Demand Energy CustomerRepairs & Maintenance 75.86 39.41 30.03 6.42 31.95 3.94 3.52 15.74 3.00 11.28 1.28 0.00 5.14 48.98 6.94 19.94Employee Costs 187.20 65.56 65.56 56.19 45.89 0.00 19.67 45.89 0.00 19.67 39.33 0.00 16.86 131.11 0.00 56.19Administration & General expense 29.30 5.86 11.72 11.72 2.93 0.00 2.93 5.86 0.00 5.86 5.86 0.00 5.86 14.65 0.00 14.65Depreciation & Related 89.27 48.75 36.15 4.36 38.95 0.00 9.80 28.85 0.00 7.30 3.14 0.00 1.22 70.95 0.00 18.32Interest on WC 28.36 15.49 11.48 1.39 26.78 0.00 6.74 6.39 5.10 0.00 0.15 0.72 0.52 17.64 7.71 3.00Interest & Financial Charges 61.36 33.51 24.85 3.00 26.78 0.00 6.74 19.83 0.00 5.02 2.16 0.00 0.84 48.77 0.00 12.59Other Debits (incl. Bad debts) 1.84 0.00 1.08 0.75 0.00 0.00 0.00 1.08 0.00 0.00 0.75 0.00 0.00 1.84 0.00 0.00Provison of Income Tax 0.99 0.54 0.40 0.05 0.43 0.00 0.11 0.32 0.00 0.08 0.04 0.00 0.01 0.79 0.00 0.20Rate of Retun 0.85 0.46 0.34 0.02 0.37 0.00 0.09 0.27 0.00 0.07 0.02 0.00 0.01 0.67 0.00 0.17SUB-TOTAL 475.04 209.59 181.62 83.91 174.08 3.94 49.59 124.23 8.10 49.28 52.73 0.72 30.46 335.40 14.66 125.08LessExpenses capitalised 50.79 27.74 20.57 2.48 22.16 0.00 5.58 16.41 0.00 4.16 1.79 0.00 0.70 40.37 0.00 10.43Net Prior Period Charges/Credits -6.67 -1.16 -0.76 -4.73 -1.16 0.00 0.00 -0.76 0.00 0.00 0.00 -4.73 0.00 -1.92 -4.75 0.00TOTAL 430.92 183.01 161.81 86.16 153.08 3.94 44.01 108.58 8.10 45.13 50.94 5.45 29.76 296.96 19.41 114.66

Retail supply Distribution TotalDistribution 11KV Distribution LT network

Step 3- Sample Feeder Analysis Identification of sample feeders

Predominantly agriculture load (80%) Representative of the different circle to capture the geographical spread

Identification of sample days for data collection 18 days uniformly spread across the entire year to capture the seasonality

in agricultural demand of the utility. 1 day of utility peak day

Derivation of load curve from the above data

Estimation of Class Load Factor Average Demand/ Peak demand

Estimation of load loss factor Empirical formula by EPRI to estimate energy losses (0.3 *Load Factor +0.7 (Load Factor)^2

Step 4 - Estimation of Coincident FactorCoincident factor is the ratio of agricultural demand at the time of the system peak to the agricultural peak demand

Estimation of CF using average peak•Agriculture category faces administered peak with lack of voluntary consumption, thus usage of single peak gives biased results

•States witness large variation in monthly peak, thus usage of average peak will capture the overall seasonality during the year.

Steps in Calculating Coincident Factor

Ascertain the time and magnitude of system peak for each of the 12 months separately

Establish the corresponding load from the sample feeder data (average if there are more than two readings for the month)

From the above, take a simple average of above 12 monthly readings.

This average divided by the feeder sample peak gives the CF

Illustration- UGVCL Estimation of CF

Prescribed Date*

0100 0200 0300 0400 0500 0600 0700 0800 0900 1000 1100 1200 1300 1400 1500 1600 1700

06.04.2007 6.073 4.452 5.814 5.836 4.607 5.363 4.196 2.620 2.783 1.286 1.286 3.616 2.403 1.070 4.320 4.486 4.48622.04.2007 5.503 5.620 5.586 5.586 4.270 5.929 8.393 4.622 4.324 4.579 4.555 8.370 7.644 6.856 4.217 3.800 4.37302.05.2007 5.892 5.088 5.003 5.716 5.932 5.937 5.718 4.150 4.995 4.545 4.562 4.435 5.903 5.770 5.931 4.545 4.51219.05.2007 3.780 3.652 3.685 3.523 1.243 4.729 2.727 2.530 2.606 4.266 4.218 4.000 5.041 5.288 3.999 4.365 4.12614.06.2007 2.184 2.564 2.760 2.543 3.375 3.979 3.339 3.267 5.327 4.166 3.993 4.354 5.502 5.517 4.732 4.977 4.76115.07.2007 0.561 0.592 0.681 0.900 0.997 1.814 1.953 1.415 1.229 1.341 0.741 0.803 0.842 0.426 0.625 0.828 0.99125.07.2007 1.504 1.529 1.430 1.612 2.460 2.900 3.550 3.084 2.429 2.249 2.300 2.263 3.853 4.070 3.663 3.480 3.40715.08.2007 0.247 0.296 0.328 0.228 0.562 0.827 0.866 0.885 0.685 0.682 0.952 0.872 2.029 2.429 2.194 2.252 2.16904.09.2007 0.370 0.246 0.246 0.599 1.018 1.307 1.994 2.284 2.448 2.375 2.315 2.184 4.760 2.627 2.116 1.445 0.86526.09.2007 0.635 0.803 0.686 0.837 0.650 0.701 1.050 1.575 0.999 1.541 1.308 1.376 1.270 1.328 2.652 2.425 1.89108.10.2007 5.043 4.775 4.856 4.833 4.043 3.366 3.648 2.741 4.156 5.482 5.191 5.192 6.623 7.270 6.529 7.253 4.34318.11.2007 7.033 6.825 6.421 5.134 4.979 5.112 5.079 4.101 3.599 4.210 4.281 5.650 7.307 7.191 7.239 6.732 6.76201.12.2007 7.445 6.278 6.824 6.940 6.105 4.310 4.837 5.239 5.463 5.556 5.456 7.480 8.097 7.408 7.253 7.162 6.59211.12.2007 7.312 6.391 6.538 5.824 5.807 3.868 4.280 4.041 4.747 4.018 5.172 3.450 4.526 5.920 4.673 5.673 4.97325.12.2007 7.401 6.219 6.606 7.100 6.207 2.669 2.071 2.406 4.449 4.383 3.788 3.762 5.078 5.094 4.062 5.361 5.42712.01.2008 6.231 6.064 5.998 6.590 4.356 4.323 2.772 1.650 3.693 3.823 4.598 4.720 6.767 8.830 7.198 6.707 6.52214.01.08 6.818 6.185 5.906 4.703 4.583 5.805 6.419 7.181 5.431 5.699 5.542 7.296 9.095 9.247 7.075 7.014 1.93320.02.2008 6.236 5.886 4.319 4.859 3.902 3.596 3.547 4.962 6.892 6.591 6.403 3.745 7.045 7.240 6.559 6.299 4.15914.03.2008 8.300 8.253 6.920 6.719 8.164 6.874 5.339 5.059 3.247 3.125 3.023 1.890 3.605 1.930 3.463 3.343 1.686

Months Peak Timings

Corresponding

Feeder data

Apr 8:00 AM 3.62

May 6:00 AM 5.33

Jun 7:00 AM 3.34

Jul 8:00 AM 2.25

Aug 8:00 AM 0.89

Sep 9:00 AM 1.72

CF= Agri demand during system peak/ Max peak

= 3.51/9.25

= 37.97%

MonthsPeak

Timings

Corresponding Feeder

data

Oct 12:00 PM 5.19

Nov 9:00 AM 3.60

Dec 11:00 AM 4.81

Jan 5:00 AM 4.47

Feb 2:00 PM 4.98

Mar 12:00 AM 1.93

Average 3.51

Max feeder load = 9.25 MW

Selected Days for sample collection Sample Feeder Data for 24 Hours of a day

Step 5 - Estimation of Coincident Peak

Estimating Non Coincident Peak

When segregated technical and commercial losses available

NCP = (Consumption and commercial losses in MU)/(LF*8.76) +(Technical Loss in MU)/(LLF*8.76)

When losses could not be segregated into technical and commercial losses

NCP = (consumption + total loss)/ (LF*8.76)

Coincident peak is the contribution of the agricultural demand to the system peak demand

Coincident Peak = Non Coincident peak * Coincident Factor)

Illustration- UGVCL- Estimation of CP

Particulars Remarks Calculations

Agricultural Consumption As per annual accounts 5837 MU

Losses attributable to agriculture Estimated to match annual

accounts 1900MU

Energy Input to agri Sum of above two 7737 MU

Load factor (LF) Derived from Sample Feeder Data 41.97%

Coincident Factor (CF) Derived from Sample Feeder Data 37.37%

Non Coincident Peak (NCP) Energy input/ (8.76* LF) 2104 MW

Coincident Peak (CP) NCP * CF 799 MW

Ratio of CP CP/System peak 37.09%

Step 6 - Block approach to asses energy component of power purchase cost

Merit Order Stack for 2007/08

Base Block

Power Purchase for 2005/06

Growth Block

Power purchase over and above the base block

Estimate the per unit variable cost for base

block (X1)

Estimate the per unit variable

cost for growth block (X2)

B

C

D

A

Variable cost for agri: Incremental Input to agri * X2

Variable cost for agri: Base year Input to agri *

X1

Variable cost of power

purchase attributable

to agriculture category

Different consumer categories pose different weights on the incremental power purchase over the

years. Each category should be charged in accordance with their respective share of the

incremental power purchase

Illustrative example

Cost of PP for Agriculture = Variable cost of base block * X MU + Variable cost of growth block * Y MU (incremental increase in agri sales)

0

2 0 0 0

4 0 0 0

6 0 0 0

8 0 0 0

1 0 0 0 0

1 2 0 0 0

1 4 0 0 0

B a s e Y e a r R e le v a n t Y e a rPo

wer

Pu

rch

ase(

Mill

ion

kW

h)

A g r ic u l t u r e O t h e r c a t e g o r ie s

“Base Block”

“Growth Block”

X million kWh

Y million kWh

Step 7 - Allocation of classified costs

Allocation of Demand CostsFor all functions demand cost is allocated on basis of coincident peak demand

Allocation of Energy Costs: For power purchase energy cost component is allocated on the basis of block approach (previous slide)For transmission & distribution function, energy cost component is allocated on the basis of ratio of agricultural consumption to the total consumption of the utility

Allocation of Customer Costs: For three functions, customer related cost is allocated on the basis of the ratio

of number of agricultural consumers to the total consumers of the utility.

Sum total of the different cost (demand, energy and customer related cost) allocated to the agri consumers gives the total cost of supplying power to agricultural consumers as incurred by the particular utility.

Illustration- UGVCL- Allocation of cost

  Power Purchase Cost Transmission charges Distribution TotalTotal Cost

  Demand Energy Customer Demand Energy Customer Demand Energy Customer  

Functionalised &Classified Cost of UGVCL( Rs Cr)

887.63

1811.73

  231.50

    296.96 19.41 114.66 3361.88

Allocation of Cost to Agricultural Category (Rs Cr)

329.21

1073.93

  85.86     110.14 11.55 27.86 1638.55

Per unit Cost toagriconsumers(Rs /Kwh)

0.56  1.84   0.15     0.19 0.02 0.05 2.81

On basis of Coincident

peak

Block approach

In ratio of Agricultural consumer to

total

In ratio of energy sent to Agricultural consumers to total power purchase

Step 7 - Estimation of Cross SubsidiesCross Subsidy to

agricultural consumers = Total Cost of supplying power to agri consumers – revenue from sale of power to agri – Subsidy provided by the government

Particulars Units  

Energy Sold to agri MU 5837

Revenue from sale to agriculture Rs Cr 658

Total Cost of Supply to agri Rs Cr 1638

Subsidy from govt Rs Cr 577

Cross Subsidy Rs Cr 404

Illustrative Example- UGVCL

Module 5

Conclusions

Conclusions……i

Move towards the actual cost to serve pricing principle It would introduce transparency in rate designing and hence in

subsidy/ cross subsidy assessment Special attention to be taken in allocating power purchase costs

Power purchase costs form significant share (75-80%) in overall costs (fixed and variable)

Further, fixed costs ranges between 20% to 50% of the total PP cost (depending on vintage/type/technology of plant)

Agriculture CoS to also reflect quality and reliability of supply Reliabity of supply -Agriculture consumers mostly get restricted

supply When consumers pre informed: No discount on cost of supply When consumers not pre informed: Discount on cost of supply

Conclusions……ii

Quality of supply – Often characterised by poor voltage profile Modify the total cost of power purchase on account of agriculture consumers

considering the average voltage deviations beyond permissible limit Aggregating the penalty levied on licensees due to poor quality supply and,

thereby, moderating the power purchase cost

Use of appropriate load curves Need of load research study for assessment of power demand

of consumer class Sample feeders selected to have predominant load of

agricultural consumers Need to capture seasonal diversity in estimation of CF

Agriculture demand varies across year due to different seasons, cropping pattern and rainfall

Conclusions……iii

Capture the diversity in agriculture demand by taking into account sample load data spread across the year

Estimation of CF to be based on average monthly peak Agriculture faces administered peak

Consumption curve for agriculture would be different had they been provided 24hrs access to power

Use of single “peak” for estimating CoS imposes higher burden on this category and does not take into account the effect of seasonality

Need to change the assets/expenditure accounting practices Utilities should maintain the voltage wise inventory of assets

Thank You