State discoms hike industry power rates

Try to keep steady inflow of revenues under UDAY

Ten of the 26 states that signed up for the Ujwal DISCOM Assurance Yojana (UDAY) have increased energy charges for industries in the range of 3% to a whopping 25% in FY18. This is a new avenue to improve revenues as they undergo financial restructuring. 

Experts, however, said this was against one of the essential pillars of UDAY, though it might help reduce the financial stress of state power distribution companies (discoms) to some extent.

Till now, Andhra Pradesh, Assam, Bihar, Chhattisgarh, Odisha, Maharashtra, Gujarat, Madhya Pradesh, Uttarakhand and Meghalaya have revised tariffs. In Gujarat, the rates are almost the same as last year. Maharashtra has cut the rates marginally, from Rs 7.95 to Rs 7.9. 

But everywhere else, the industry continues to pay high power charges. The hike this year has been in the range of Rs 5 to Rs 8 per unit, in the energy component of the tariff. The fixed part remains the same for all consumers.

This has happened at a time when the country has surplus energy. Peak power demand is about 150,000 Mw, while peak availability is around 180,000 Mw and installed capacity is about 300,000 Mw. Rates in the short-term market have come down to Rs 2.5 per unit; long-term agreements in recent times have seen rates as high as Rs 5 per unit.

Experts said as states wanted a steady flow of revenue, industries were being charged more to recover costs. State discoms cumulatively owe Rs 4 lakh crore, which is being restructured under UDAY.

“While the account books of the discoms are clear now, with state governments taking over their debt, there is no financing till they turnaround their operations. In such a situation, states are charging higher from heavy-usage consumers. Discoms are hoping to keep their revenue stream healthy,” said a Delhi-based sector expert.

Most of these states have high cross subsidy surcharges (CSS) and additional surcharges on the final power tariff for industrial consumers. 

The CSS is levied by the state discoms to recover their cost of supply for giving subsidised power to a section of the population. 

During the last fiscal year, the CSS increased from 30% to 600% in about a dozen states. In Bihar, it went up by 500%, 174% in Uttar Pradesh. In Himachal Pradesh, it was up 193% and in Gujarat, 146%.

“This, however, beats the purpose of UDAY. The program to reform discoms was supposed to kick in financial and operational efficiency. Imposing CSS brings it back to the same vicious cycle of subsidising power. Also, its time discoms look at rational power supply and tariff structure across the board,” said an analyst.

The National Electricity Policy allows states to subsidise a section of their consumers. In turn, it has provisions for levying additional charges on consumers who are capable of paying higher rates to make up for the gap. The charge is usually levied on commercial and industrial consumers who can switch to other sources of power.

The subsidised consumers are mostly farmers, residents of villages, and lower-income and -consumption groups. Industries are allowed to purchase power outside the states and spot market, in the “open access” category. 

Open access is yet to be made mandatory for all consumers under the Electricity Act. It is also proposed that open access be free of any additional charges to create a uniform power market across the country. Currently, states keep restricting open access by levying various charges on the industry, such as CSS. 

The National Tariff Policy suggested a new formula for CSS determination and capped it at 20% of the tariff — which led to states increasing the charges. The policy also introduced additional surcharge for these consumers when they shift to sources other than state discoms.