Delhi’s electricity bill cannot be reduced unless reforms such as de-licensing of the distributors, breaking the monopoly of a few discoms is undertaken
In its order dated June 22, 2023, the Delhi Electricity Regulatory Commission (DERC) has allowed the power distribution companies (discoms) in the national Capital viz. BSES Yamuna Power Limited (BYPL), BSES Rajdhani Power Limited (BRPL) and New Delhi Municipal Council (NDMC) to charge 9.42 per cent, 6.39 per cent and 2 per cent respectively in PPAC (Power Purchase Agreement Cost) on top of the prevailing rates of 22.18 per cent, 20.69 per cent and 28 per cent.
Earlier on June 7, 2023, Tata Power Delhi Distribution Limited or TPDDL (earlier NDPL) was allowed an additional PPAC of 1.49 per cent. But then, already it was allowed a high PPAC of 31 per cent. The higher rates are applicable for the next nine months i.e. from July 2023 to March 2024.
PPAC is a surcharge to compensate discoms for variations in the market-driven fuel costs. Since it is levied as a surcharge on the ‘total energy cost and fixed charge component’ of the electricity bill, the effective increase on the overall electricity bill will be 7.7 per cent in case BYPL, 5.3 per cent for BRPL and 1.2 per cent for TPDDL.
The hike will impact all consumers of electricity except households (HHs) which consume less than 200 units a month. Under the largesse granted by the Kejriwal dispensation, HHs consuming less than 200 units are fully subsidized by the state government. However, HHs consuming between 200 and 400 units a month will be impacted as the state subsidy in their case is capped at Rs 850.
There is an element of ‘inevitability’ in non-preferred consumers having to pay more for the power they consume. This is because as per directions of the Ministry of Power (MoP) issued on November 9, 2021, every state regulatory commission (DERC in the case of Delhi) has to put in place a mechanism for ‘automatic’ pass-through of fuel and power procurement cost in tariff for ensuring the viability of power sector.
More than 25 states and union territories have implemented a fuel surcharge adjustment formula commonly known as PPAC. It is a requirement under the Electricity Act, DERC’s tariff orders and Appellate Tribunal for Electricity (APTEL) orders. Delhi discoms are allowed to make adjustments in PPAC every quarter. This time, revision has come after a year.
The discoms are the sole sellers of electricity in a state. They purchase power from public sector undertakings (PSUs) such as the National Thermal Power Corporation (NTPC), etc., and independent power producers (IPPs), under power purchase agreements (PPAs) which are mostly long-term contracts up to 25 years. A small portion of the demand, in the range of 5 – 10 percent is purchased from the electricity exchange. Almost all PPAs have in-built provisions for ‘automatic’ pass-through of fuel costs. The Central Electricity Regulatory Commission (CERC) allows central PSU generation companies or gencos like NTPC, NHPC Limited and even transmission companies such as Delhi Transco Limited to revise PPAC every month. Ditto for IPPs.
Even in cases where the IPP viz. Tata Power Ltd (TPL) and Adani Power Ltd (APL) had committed to sell to discoms at fixed tariff during the entire life of the PPA for their ultra mega power plants each with an installed capacity of 4,000 MW and 4,620 MW – following a due process under tariff-based competitive bidding (TBCB) – managed to get pass-through of the fuel cost. This was sanctioned by none other than the Supreme Court (SC).
Besides, the MoP issues orders from time to time which have the effect of increasing fuel costs. For instance, during April/May 2022, using powers vested in the government under Section 11 of the Electricity Act, 2003 it issued directions to all imported coal-based plants to operate and generate power to their full capacity and all gencos based on domestic coal to import at least 10 per cent of their fuel requirements. Imported coal being far more expensive, this has led to an increase in the fuel cost and turn, PPAC. The cost of generation has also increased due to the zooming cost of natural gas particularly during 2022-23 in the wake of the Ukraine war.
Fuel cost being the dominant component of the power purchase cost and an official diktat (in some cases, even sanctioned by the top court) requiring fuel cost to be passed on to the consumer – even every month – has rendered PPAs infructuous. Even if a discom negotiates a good purchase price, it isn’t sure when this gain would get nullified.
Rising fuel cost is not the only culprit
The extant regulations give discoms leeway to balance their budget without being accountable regarding costs. Under the Electricity Act, of 2003, they are required to set tariff in a manner such that the revenue generated from sale at these tariffs fully cover the power purchase cost plus the cost of wheeling, and distribution. Generally, this requirement is not met even as the discoms leave substantial gaps uncovered.
The state electricity regulatory commissions (SERCs) recognize that the gap exists but don’t do anything meaningful to plug it on a sustainable basis. Far from that, they allow the discoms to book this gap as receivable in their balance sheet – giving it a fancy name Regulatory Assets (RA). This has led to a proliferation of RAs over the years. In Delhi, the current RAs are around Rs 20,000 crore.
In a recent order, the SC has directed the DERC to let discoms recover their RAs. Even though DERC has decided to contest the order, just in case the top court upholds it, Delhiites could face a steep hike in tariff of up to 100 per cent. Meanwhile, they are already paying for this grey area (read: RAs) by way of discoms collecting an ad-hoc and arbitrary 8 per cent surcharge.
Consumers other than the beneficiaries of state subsidies also suffer due to these subsidies being routed through discoms. The mechanism works as under: the discoms don’t bill HHs consuming up to 200 units a month; as for HHs consuming in the 200 – 400 range, they give a deduction of Rs 850. In turn, the Delhi government is obliged to reimburse the discom for the shortfall in collection. The former may do it partially or won’t reimburse at all. The resulting shortfall in revenue could eventually land in the RAs box.
The RAs could also arise due to the sheer act of financial irregularities committed by the discoms. A clear indication of this is available from the report of the Comptroller and Auditor General (CAG) in 2015 on the audit of Delhi discoms that was ordered by Chief Minister, Arvind Kejriwal immediately after taking charge in his first term. CAG found that discoms had charged consumers excess tariff of around Rs 8000 crores. It also revealed ‘inflated’ RAs of Rs 7957 crores. There was no follow up those findings.
To conclude, all stakeholders in the supply chain viz. power generators, discoms, transcodes, MoP and Delhi Govt are acting in a manner as to let power tariff for all consumers (other than the beneficiaries of State largesse) remain on an ascending escalator for all time. Things won’t change unless reforms such as de-licensing of the electricity distribution business, breaking the monopoly of a few discoms and direct benefit transfer of subsidy are implemented.
(The writer is a Policy Analyst)
https://www.dailypioneer.com/2023/columnists/delhi-power-tariff-will-only-go-north.html