Power tariff revisions and the state of DISCOMs

Context: 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.
• In this context let us a look at status of DISCOMS and request for tariff revision

Reasons behind the tariff revision demand

• Mounting losses
• Outstanding loans
• The consequent increase in interest burden
• Case in point: 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.

What is happening with the DISCOMs across 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 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.
• 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.
• 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
• DisComs cash flow is disrupted due to dues that are payable to them.

These dues are of three types.

• Improper Tariff fixation by regulators: Regulators themselves have failed to fix cost-reflective tariffs thus creating Regulatory Assets, which are to be recovered through future tariff hikes.
• Pending Subsidies: Second, about a seventh of DisCom cost structures is meant to be covered through explicit subsidies by State governments. Cumulative unpaid subsidies, with modest carrying costs, make DisComs poorer by over ₹70,000 crore just over the last 10 years.
• Consumer Bills pending: Third, consumers owed DisComs over ₹1.8 lakh crore in FY 2018-19, booked as trade receivables.

Way Ahead

• More Stimulus: There is a need a much larger liquidity infusion so that the entire electricity chain will not collapse
• Working on AT&C losses is important, but will not be sufficient. We need a complete overhaul of the regulation of electricity companies and their deliverables.
• Rationalisation of subsidies whereby doling out of free electricity can be eliminated to those who do not deserve such support.
• 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.
• 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.
• Proper Regulation: Regulators must allow cost-covering tariffs.

Note: Launched in July 2021, the Revamped Distribution Sector Reform Scheme (RDSS) is the latest of many central government grant-based programmes towards electricity distribution network investments.

Source: The Hindu