TARIFF REVISION OF ELECTRICITY FOR NEXT YEAR
Electricity Regulators all across the country are busy with various proposals
to increase electricity charges which need to be effective from 1stApril, 2014.
Appellant Tribunal of Electricity has also issued an order stating that all
distribution companies should file their petition (rate case) by November failing
which regulators can suo- motu determine the tariff.
India will be going for General Elections in March – April to elect a new Parliament.
This will give India a new Prime Minister as well as a new cabinet. Recently four
states had their state elections to elect the state assembly and so their chief
ministers. The ruling party in Delhi lost badly to a new comer on the plank to
slash electricity prices by 50% if it comes to power. In other states like Madhya
Pradesh and Chhattisgarh, where the incumbent retained power, it showed 24x7
supply of electricity as a one its major achievement. Given this backdrop, where
electricity has become one very important agenda item in the election manifesto
which can make or break of an election, it would be interesting to see if Regulators
can prevail on distribution companies to make real commercial oriented proposals.
As per the Electricity Act 2003, distribution companies are responsible to present a
multi-year tariff proposal each year based on their annual revenue requirements.
Except for a few private players in Delhi, Mumbai, Kolkata and Ahmadabad, the
distribution companies are mostly state owned with their geographical boundaries
defined by electricity system of less than 66 KV. There are around 80 such
distribution companies and all state owned utilities have uniform tariff for similar
categories in the whole state. Broadly, the electricity consumer sector in India
(about 23 Crores) can be divided into five major categories, namely: 1) Domestic,
2) Commercial, 3) Industrial, 4) Agriculture and, 5) Others (Railways, Street
lighting etc.). This could be different in different states; ex. Andhra Pradesh has
80 categories of various classes of consumers. As per an estimate, of the total of
around 23 crore consumers, domestic category is around 18 Crores. The domestic
consumer consumes about 25% of electricity produced in the country, but they
form 80% of the consumer base, which is also a vote bank. No government in
power, especially the one which is due for election would like to bring in policies
(or be perceived to bring in policies in future) which in any way could lead to
negative impact on the primary vote bank. Also, it is normally expected from the
Government to protect the domestic class from massive rate hike.
In normal business a bulk buyer of any product or service is expected to pay
lower price for the same product or service than a small buyer. However, in India
this rules a reverse in electricity sector. In India the bulk consumer of electricity
pays more for the same electricity when compared to a small consumer. One
primary reason for this is the collection efficiency with bulk consumers is better
than with small consumers, and to make up for the poor collections from the
small consumers the bulk consumers are charged a higher price than the small
consumer. This effectively is cross-subsidy. Though the Electricity Act allows the
bulk consumers to buy electricity from open market, the distribution companies
however are resistant to allow this to happen. The government allows for a cross
subsidy charges to be added to the bulk consumer’s electricity rates. These cross-
subsidy charges are different in different states: It was zero in Maharashtra during
2008 but it is now around Rs 2/-, Tamil Nadu which was 45 paisa is now Rs 3/-.
The distribution utility in Gujarat is proposing additional subsidy of Rs1.30/-.
Not to stay far behind, in Mumbai, Tata which fears drift of consumers is now
approaching the Commission to levy cross subsidy.
Distribution companies buy their projected requirement (including contingency
arrangement) of Power from various sources. The cost of delivery to consumer
is determined based on the best practice approach which also takes care of the
previous year losses. Some of the states are also allowing Fuel Cost Adjustment
on quarterly basis so that fuel cost increase does not burden the distribution
companies. The tariff proposals are put up for public scrutiny and revision is
done annually. The private distribution companies are not subject to Comptroller
Auditor General (CAG) audits but Delhi Commission has supported CAG Audit of
private companies.
Electricity supply is primary a state subject. The electricity rates are different in
different states. Example, it is Rs.3.36/unit in Chhattisgarh, Rs 4.4/unit in Orissa,
Rs 3.3 in Uttrakhand and is about Rs 10/unit in Maharashtra, Rs7.5/unit in Delhi,
Rs 6.3/unit in Punjab etc. In order to bring the electricity rates in all states in
harmony, a Forum of Regulators has been set up by law. In 2011 the Ministry of
Power directed the Regulators to not fix Tariff for more consumers with more
than one MW peak. However, this has vastly been ignored by the regulators.
In fact some regulators have gone to the extent of questioning the veracity
of Government directions. The Tariff Policy allows distribution companies to
negotiate prices with the state regulators. At present all distribution companies
(discoms) and state Governments are taking shelter of Regulators to shield price
increase to their consumer sector.
Thus, given the election time and the need (to have a healthy distribution
company that meets all the demands of the consumers) it will be interesting to see
whether Regulators will increase the tariff particularly when average per capita
consumption is about 1000 KW which roughly translates to 15% of per capita
income for paying electricity.
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