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Power Price Cut: Is It Only A Survey Promise?

By Expert Author: Swati Agarwal

EPC News: 27 Nov,2013: In the politically-charged national capital, increasing electricity tariff is an important survey problem. Both the Aam Aadmi Party and Bharatiya Janata Party have used it as a main plank to attack the Sheila Dikshit-led Congress govt. While Dikshit has protected her govt saying the power prices are among the cheapest in the country, the resistance has claimed otherwise.

As the date of polling nears, the statement of Aam Aadmi Party and Bharatiya Janata Party that if elected to power, they will carry electricity prices down in Delhi are becoming shriller. Bharatiya Janta Party, in its ’10-point method, has said that it will cut rates by 30 %. Aam Admi Party has guaranteed to tariff down by 50 %.

Both parties agree that distribution companies are the flaw for high rates and recommend measures to introduce “Transparency” in their working. These consist of introducing an open-access policy, ordering an review of discoms by the Comptroller and Auditor General and bringing them under the Right to Information Act. Aam Admi Party, in addition, proposes to independently verify the electricity bills of customers for any errors.

Amidst these claims and counter-claims, a real query to ask is whether power tariffs in Delhi are as great as they are completed out to be? And, if there is scope for decreasing the prices.

The response can be found somewhere in between. Power tariffs in Delhi are neither too expensive nor very low. Information from the Main Electricity Authority, or CEA, which summarises charges of all states, shows that the tariff in Delhi for the first 200 units is more costly than in metro cities like Chennai and Ahmedabad, Mumbai (Tata Power). But, it is cheaper shows than in Hyderabad and Bangalore. Further, a compare of Delhi with its nearby states shows than Punjab and Rajasthan, Haryana, Uttar Pradesh have greater power tariffs.

A comparison of the March 2012 charges with those of March 2013 shows that costs have increased by 24 % in Delhi. However, during the same interval, tariffs in Tripura improved by 91 %, in Maharashtra by 52 %, in West Bengal by 35 % and in Kerala by 34 %. Then again the increase was lesser in Gujarat, Bangalore and Kolkata, Mumbai. During the same interval, tariffs reduced in Tamil Nadu by 5 %, Ahmadabad 2.2 % and Uttar Pradesh 0.95%.

For the first 9 years after privatization, there was no important improve in tariffs. Private distribution companies did ask for power prices to be improved within a few years of taking over the business, but Delhi’s power regulator declined to accede. However, tariffs went up by a normal 21.7 % in Aug 2011, 20.8 % in July 2012 and by 5 % in July this year.

Publish the last improve, tariff for the lowest fill customers with use of 200 models per month in the domestic category went up to 3.9 per unit.

For 2013-14, the three discoms had petitioned the Delhi Electricity Regulating Commission for an Aggregate Revenue Requirement of 19,044 crore. At the improved tariff, the complete revenue accruing to the 3 discoms works out to 15,360 crore as compared to the approved Aggregate Revenue Requirement of 14,448 crore, leaving a surplus of 911 crore for discoms this financial. After considering the 8 % surcharge, the complete revenue will go up by an extra 1,228 crore, leaving a net excess of 2,140 crore with the companies. This surplus will offset a major portion of the accumulated revenue gap of 3,497 crore, leaving a net incremental deficiency of 1,356 crore this fiscal.

Any tariff decrease declared by Aam Admi Party or Bharatiy Janta Party, in case they handle an electoral success, will further increase this income deficiency. The three companies, put together, already have accumulated regulating resources – cost recovery permitted by regulator future – of over 11,000 crore. DERC has lately permitted levying an 8 % surcharge to protect this build-up of RAs. That attempt would be nullified by any move to decrease tariff.
“The 3 companies are already running into losses. We are working on a plan to neutralize the RAs over the next 4-5 years through the 8 % surcharge and tariff revisions. In case tariff is reduced by 30 % or 50 %, it would spoil up the plan,” says a mature DERC official. “It is not practically possible, unless, of course, the govt of the day chooses to improve the subsidy element,” he adds.

The cost of power creation has been rising in the country. Companies argue that the cost of power creation has followed the bend along the rise of prices of coal and gas. In Delhi, 90 % of the total power is sourced through thermal power stations and the rest is contributed through hydro power. Further, of the thermal power stations, 68 % are coal-based and the rest are gas-fired.

The DERC official also backs the declaration of the impracticability of decreasing tariff. He disagree with the Power Purchase Cost element alone accounts for over 80 % of the price of supply.

The advantages of open access can be seen in Mumbai where, but disparately Delhi, the power tariffs between the two discoms differ considerably. According to the CEA information as on March 2013, for the first 200 units Tata Power supplies power at 2.48 a unit while Reliance Energy charges 5.34. A research by Prayaas says that until June 2011 about 160,000 customers including 83,000 domestic customers migrated from Reliance to Tata.

A key aspect of BJP’s strategy is “curtailing unnecessary buy of power”. The party says “power companies buy more electricity than what Delhi requires. As a result, customers pay an extra 2 per unit”.

Delhi government’s discussion is that more power is bought to meet the peak demand. An inter-city evaluation by Prayaas Energy Team reveals that peak demand in Delhi is much higher than in any other city. For example, Delhi’s peak demand is around 5,000 Mw, which is 57 % more than that of Mumbai which has the second-highest peak demands. Further, Delhi has a non-uniform demand with large variations between peak & minimum demand.

For the BSES discoms, the Bulk Power Price which includes the cost of generation and transmission has jumped by around 300 % from 1.42 per unit in 2002-03 to 5.71 per unit last financial year. However, average retail tariff cost across categories has increased by 66 % over the same period to 6.5 per unit.
Power distribution in Delhi was privatized in 2002. Delhi Vidhyut Board, which was creating losses, was decontrolled and private players were invited. Subsequently, three private discoms came up in Delhi.

At present, Tata Power Delhi Distribution, a partnership project between Tata Energy and the govt of Delhi, resources Power to the northern and the north-western part of the city. The rest of the capital gets its power supply from BSES Yamuna Power and BSES Rajdhani Power. BSES is possessed by the Anil Dhirubhai Ambani Group. Two relatively small areas in the capital – New Delhi Municipal Corporation and Delhi Cantonment – are supplied by state-owned companies.

A decade later, the capital is considered a success story in power distribution reforms as power supplies here have stayed ahead of the steadily rising demand. Though the total requirement has gone up from 3,000 Mw in 2002 to 6,000 Mw now, the 3 power discoms have been succeeded in meeting the 100 % jump in demand. Load-shedding, which had become rampant in the last years of the 1990′s, has become a thing put to past.

Since the introduction of private discoms, transmission & distribution losses in the capital too have come down. According to the Delhi Economic Survey 2013-14, since private started operations in 2002, the transmission & distribution losses in Delhi have been brought down to 17 % from 60 %.

Both Bharatiya Janta Party & Aam Admi Party have claimed that Power prices can be brought down by cutting down transmission & distribution losses. According to Prayaas Power Team, a Pune-based NGO, their claims might have some weight considering that Chennai, Bangalore, Kolkata and Mumbai, Hyderabad have discoms that are more capable.

For both Aam Admi Party and Bhartiy Janta Party, the problem clearly can be lies with discoms. Bharatiy Janta Party says it will introduce “Transparency” in the working of the discoms by ordering an review by CAG, curtailing “unnecessary” Power purchases to carry down the price by Rs 2 per unit, ensuring more independence to DERC by appointing “competent” people and controlling power thefts.

Though the discoms have so far refrained from responding to the accusations against them, DERC has told the Delhi High Court that it is in favor of conducting a CAG review and bringing discoms under RTI.

Bharatiya Janta Party and Aam Admi Party’s primary argument is that discoms in Delhi have “monopolized” Power. And the solution lies in introducing an open-access system which allows customers to select from the power discoms. This was the primary objective of the Electricity Act 2003 which had envisaged open access as a system to introduce competition in the power sector.

Although the facilitative structure created by the Central Electricity Regulating Commission has started the system of start accessibility at the inter-state level, none of the states has provided the option to ordinary customers. At the moment, this option is only available in Mumbai where customers can select between Tata Power and Reliance Infra.

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