Power tariffs for industry shoot up

This is thanks to increase in states' levy of cross-subsidy charges

Power tariffs paid by industry have increased across states owing to the levy of high cross-subsidy charges to subsidise lower-paying consumers. There has been 30-600 per cent increase in cross subsidy surcharges (CSS) in the past year in the states reviewed by Business Standard.

In Bihar there was a 500 per cent increase in CSS, while in Uttar Pradesh it was174 per cent, followed by 193 per cent in Himanchal Pradesh and 146 per cent in Gujarat.

At the same time, Bihar, Chattisgarh, Gujarat, UP and Uttarakhand have issued tariff orders for financial year 2016-17 and only Gujarat has allowed a retail tariff to be increased. These states have, however, allowed CSS to be levied on industry. Rajasthan has not filed a tariff petition but has levied additional surcharge.

CSS is levied by state power distribution companies (discoms) to recover cost of supply. This comes at a time when most states have signed up for the Union government's Ujwal Discom Assurance Yojana (UDAY) scheme that aims to bring down losses and improve efficiency. However, most of the states have increased the amount of additional charges levied on industry.

According to market estimates, the gap between the average cost of supply (ACS) and the average revenue realisation (ARR) of state-owned discoms is around 27 per cent, and around 35 per cent in big states such as UP and Rajasthan.

The National Electricity Policy allows states to subsidise a section of consumers. It also has provisions for levying additional charges on consumers capable of paying higher rates to make up for the ACS-ARR gap. The charge is levied on commercial and industrial consumers who are capable of switching to other sources of power; thereby they need to compensate discoms.

The National Tariff Policy (NTP) 2016 suggested a new formula for CSS determination and capped it at 20 per cent of tariff, which led to states increasing charges. NTP also introduced additional surcharge for these consumers when they shift to other sources apart from states' discoms. Delhi, Punjab, Haryana, Rajasthan and Himanchal Pradesh have introduced additional surcharge in their tariff regime.

"If CSS is higher than the ACS-ARR gap of any state, then it is a clear sign of protectionism. States have a public interest in levying CSS. As the distribution sector faces losses across states, we need to link the CSS with AT&C (Aggregate Technical and Commercial) losses faced by discoms. This would ensure that as states bring down their losses, they will reduce additional charges," said a Delhi-based expert.

Executives said states keep restricting open access by levying various charges on industry. "Cross subsidy makes up for subsidised power promised by the political class to appease the rural population," said a power sector executive. It thereby restricts the idea of open access, which is one of the most important amendments suggested in the Electricity Act, the executive said.

Those who avail of the subsidies are mostly farmers, the rural populace, and lower income/consumption groups. Industries are allowed to purchase their power demand from outside states and the spot market, falling in the category of open access. Open access is yet to be made mandatory for all consumers in states under the Electricity Act. It is also proposed that open access be made free of additional charges to ensure a uniform power market across the country.