Power Tariff Revisions and the state of DISCOMs

Syllabus: General Studies Paper 3

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%.

According to Niti Aayog’s report of August 2021, most power DISCOMs in the country incur losses every year — the total loss was estimated to be ₹90,000 crore in the financial year 2021. 

Why has the tariff revision petition been filed by the power utility?

• A number of factors, which include mounting losses, outstanding loans and the consequent increase in interest burden, has compelled the Tangedco to file the petition. 
• 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 by 2018-19, as stipulated in the scheme.

What about other power DISCOMS in the country?

• The Tamil Nadu case is an example of what is happening in the distribution sector in 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 other 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.
• In Andhra Pradesh, the power tariff hike for domestic consumers approved in March, took place after a gap of two decades. 
• Kerala, where the increase came into effect in late June, had it after three years. In March 2022, the Bihar Electricity Regulatory Commission issued an order, rejecting the proposal for a 9.9% hike.
• In Punjab, no changes in the tariff were made and on the contrary, since the beginning of this month, domestic consumers in the State have been given free electricity up to 300 units each month.
• In Tamil Nadu, all domestic consumers are entitled to 100 units of free electricity bi-monthly since May 2016 when the AIADMK retained power. 

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.