Power tariff revisions and the state of DISCOMs

Source: The post is based on an article “Power tariff revisions and the state of DISCOMS” published in The Hindu on 27^th July 2022.

Syllabus: GS 3 Infrastructure: Energy

Relevance: Power Sector Reforms

News: According to Niti Aayog’s report 2021, most power DISCOMs in the country incur losses every year. The total loss was estimated to be ₹90,000 crores in the financial year 2021.  The case of Tamil Nadu is an example of what is happening in the distribution sector in the country.

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. The petition proposes to hike power tariffs by 10% to 35%.

Why has the tariff revision petition been filed by TANGEDCO?

(1) TANGEDCO is facing mounting losses, outstanding loans, and the consequent increase in interest burden.

(2) Even after joining the Ujwal DISCOM Assurance Yojana (UDAY) Scheme, it could not reduce the gap between the Average Cost of Supply (ACS) and the Average Revenue Realised (ARR) to nil by 2018-19. It was stipulated by the scheme. On the contrary, Comptroller and Auditor-General report suggest, that the gap rose to ₹1.07 per unit in 2019-20 against ₹0.6 per unit in 2015-16.

(3) Recently, the Central government has withheld the release of funds that were meant under the Special Liquidity loan scheme and the Revamped Distribution Sector Scheme (RDSS), for lack of reforms.

(4) Further, the RBI 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.

(5) If the proposal comes into effect, expected in September, the hike will be after a gap of eight years.

What are the measures taken by the government so far?

The Central government has announced a Liquidity Infusion Scheme (Aatmanirbhar Bharat Abhiyan) to help the DISCOMs. Under this scheme, loans of ₹1,35,497 crore have been sanctioned.

Where do other States stand on power tariffs?

Despite the Centre’s prescription for annual or periodical revision of retail power tariff, States are reluctant to do so. The tariffs are often used as a tool by the political parties for their political agenda.

In Andhra Pradesh, the recent power tariff hike has taken place after a gap of two decades.

In 2022, the Bihar Electricity Regulatory Commission rejected the proposal for a 9.9% hike.

In Punjab, instead of hiking the tariff, the domestic consumers have been given free electricity up to 300 units each month.

Do States provide subsidies to sectors like agriculture?

Yes., the State governments provide free or heavily subsidised power supply to the agricultural sector.

For example, Tamil Nadu has been implementing a free power supply for the sector since the mid-1980s. The electricity meters were not installed for a long time. Now, the meters have been installed for agricultural pump sets, but these meters are used for an assessment of consumption and not for billing.

What should be done?

This is to be noted that the freebies on electricity tariffs are not sustainable in the long run.

The reforms are required in the power tariffs. The lessons can be learnt from the success stories. For example,

(1) There can be segregation of feeders as an option to arrive at the accurate consumption of the farm sector. the consumption of farm sector is not measured due to the absence of meters.  Gujarat is cited as a success story in this regard

(2) In Manipur, prepaid meters have been installed, and the power supply has been improved. It resulted in improved billing and collection efficiency as well as lower commercial losses.

(3) The Madhya Pradesh Electricity Regulatory Commission has provided an incentive package. An incentive equal to 5% of energy charges is given on installation for the use of energy-saving devices such as ISI energy-efficient motors for pump sets etc.