Explained| Power tariff revisions and the state of DISCOMs

T. RAMAKRISHAN

Explained| Power tariff revisions and the state of DISCOMs
Why are power distribution companies swimming in losses? Why are States reluctant to hike power prices? The story so far: On July 13, the Tamil Nadu Generation and Distribution Corporation (Tangedco) filed a general retail power tariff r...
Why are power distribution companies swimming in losses? Why are States reluctant to hike power prices?

The story so far: On July 13, the Tamil Nadu Generation and Distribution Corporation (Tangedco) filed a general retail power tariff revision petition with the Tamil Nadu Electricity Regulatory Commission proposing to hike power tariffs by 10% to 35%. If the proposal comes into effect, expected in September, the hike will be after a gap of eight years. While announcing the government’s decision to increase the tariff, Electricity Minister V. Senthilbalaji maintained that the proposed power tariff hike will not affect one crore domestic consumers and people living in hutments out of a total of around 2.39 crore.

Why has the tariff revision petition been filed by the power utility?

A number of factors, which include mounting losses, outstanding loans and the consequent increase in interest burden, has compelled the Tangedco to file the petition. Even after joining the Ujwal DISCOM Assurance Yojana (UDAY) — a scheme meant for improving the health of state-owned electricity distribution companies (DISCOM)—in January 2017, Tamil Nadu could not bring down the gap between the Average Cost of Supply (ACS) and the Average Revenue Realised (ARR) to nil by 2018-19, as stipulated in the scheme. On the contrary, the gap rose to ₹1.07 per unit in 2019-20 against ₹0.6 per unit in 2015-16, according to a report of the Comptroller and Auditor-General on the implementation of the UDAY scheme by the Tangedco which was tabled on the floor of the State Assembly in May 2022. The Minister told the media that the cumulative financial losses went up from ₹18,954 crore in 2011-12 to ₹ 1,13,266 crore in 2020-21. What is more important than all these factors is the commitment provided by the Tamil Nadu government to fully absorb Tangedco’s losses, due to which the State government has made an allocation of ₹13,108 crore this year in the form of budgetary support.

The Centre tightened its focus on the State by having withheld, through the Power Finance Corporation (PFC) and the Rural Electrification Corporation (REC), the release of ₹3,435 crore under the Special Liquidity (Aatmanirbhar Bharat Abhiyan) loan scheme, apart from not releasing the grant of ₹10,793 crore under the Revamped Distribution Sector Scheme (RDSS). The Reserve Bank of India (RBI) has issued a guideline to commercial banks that if lending is to be provided to any State-owned power utility including DISCOMs, the entity should have filed a tariff revision petition by November 30 every year.

What about other power DISCOMS in the country?

The Tamil Nadu case is an example of what is happening in the distribution sector in the country. According to Niti Aayog’s report of August 2021, most power DISCOMs incur losses every year — the total loss was estimated to be ₹90,000 crore in the financial year 2021. Due to these accumulated losses, DISCOMs were unable to pay for generators on time — as of March 2021, an amount of ₹67,917 crore was overdue.

To help these DISCOMs, the Centre in May 2020, announced a Liquidity Infusion Scheme (Aatmanirbhar Bharat Abhiyan), under which loans of ₹1,35,497 crore have been sanctioned. As of December 31, 2021, a total of ₹1.03 lakh crore has been disbursed.

Where do other States stand on power tariffs?

Despite the Centre’s prescription for annual or periodical revision of retail power tariff, States have found the exercise painful, as the parties in power in the States link the process to their prospects at the time of Assembly or Lok Sabha elections.

In Andhra Pradesh, the power tariff hike for domestic consumers approved in March, took place after a gap of two decades. Kerala, where the increase came into effect in late June, had it after three years. In March 2022, the Bihar Electricity Regulatory Commission issued an order, rejecting the proposal for a 9.9% hike. In Punjab, no changes in the tariff were made and on the contrary, since the beginning of this month, domestic consumers in the State have been given free electricity up to 300 units each month.

In Tamil Nadu, all domestic consumers are entitled to 100 units of free electricity bi-monthly since May 2016 when the AIADMK retained power. The existing DMK regime has decided not to disturb this arrangement. In Gujarat, the Aam Aadmi Party (AAP) has promised free electricity if it is voted to power in the Assembly election to be held later this year. The general approach of many parties is to use electricity as a tool for their political agenda and make promises to allure people despite knowing that such assurances, if implemented, are not sustainable in the long run.

Do States provide subsidies to sectors like agriculture?

Yes. A common feature of the power distribution policies of the States is to provide free or heavily subsidised supply to agriculture. The connections for the farm sector are unmetered. Tamil Nadu, which has been implementing free power supply for the sector since the mid-1980s, had long resisted the installation of meters even for fresh connections. But it has been allowing the installation of meters for agricultural pump sets. A senior official claims that the meters are there only to do an assessment of consumption and not for billing. Segregation of feeders has been suggested as an option to arrive at the accurate consumption of the farm sector so that the disproportionate quantum of consumption is not attributed to agriculturists in the absence of meters. Gujarat is cited as a success story in this regard. In Manipur, according to the Niti Aayog’s report, prepaid metering was supplemented with improved power supply, resulting in improved billing and collection efficiency as well as lower commercial losses.

The Madhya Pradesh Electricity Regulatory Commission, in its tariff order of March 2022, came out with an incentive package in the area of demand side management. It stipulated that an incentive equal to 5% of energy charges should be given on installation and pushed for the use of energy saving devices such as ISI energy efficient motors for pump sets and programmable on-off/ dimmer switch with automation for street lights.

THE GIST
On July 13, the Tamil Nadu Generation and Distribution Corporation (Tangedco) filed a general retail power tariff revision petition with the Tamil Nadu Electricity Regulatory Commission proposing to hike power tariffs by 10% to 35%. Mounting losses, outstanding loans and the consequent increase in interest burden, have compelled the Tangedco to file the petition.
According to Niti Aayog’s report of August 2021, most power DISCOMs in the country incur losses every year — the total loss was estimated to be ₹90,000 crore in the financial year 2021. 
Despite the Centre’s prescription for annual or periodical revision of retail power tariff, States have not complied. The general approach is to use electricity as a tool for political agenda and make promises to allure people despite knowing that such assurances, if implemented, are not sustainable in the long run.