High industrial tariff forces buyers to purchase power through open access

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A comprehensive study recently done by the Forum of Regulators (FOR) on India’s present power sector says in several states tariff structure is too complex and lack transparency. Tariffs are non-cost reflective. Each consumer category is further split into many sub-categories and such structure is preventing the consumers from responding to tariff signals. Across various states, the industrial tariff has been high coupled with low-quality of supply. FOR is a representative body of the Central Electricity Regulatory Commission and the state electricity regulatory commissions.

Between 2006-07 and 2014-15, electricity procurement from utilities grew by 4.6% annually, which is lower than the 9.3% growth in captive power generation.

“The analysis brought out that for various states, at the current level of transmission and distribution (T&D) losses, the average tariffs are less than the average cost of supply. Even with T&D losses considered at 10%, the average tariff in respect of several states would be less than average cost of supply,” an FOR member, who did not want to be identified, told Business Standard. “Further, a detailed analysis across nations on parameters of GDP, tariff level and quality of supply indicates that India stands low on per capita GDP, high on industrial tariff and low on quality of supply.”

He said as industrial sector contributes significantly to the GDP, further increase in industrial tariff, cross subsidy surcharge would negatively impact the GDP.

Price barriers such as high industrial tariff, high cross subsidy surcharge and non-price barriers such as low quality and erratic supply, ease of procuring power through open access has led to a shift to captive generation.  As the industrial tariff crosses the limit of Rs 6 per unit, the consumers tend to move towards power procurement through open access.

FOR study shows that cross subsidy surcharges (CSS) across states varies across states and in some cases as high as Rs 3.42 per unit.  As the industrial tariff crosses the limit of Rs 6 per unit, the consumers tend to move towards power procurement through Open Access. ”These barriers by states have not only resulted in making open access a non-starter, but are also causing serious impediments to the ”Make in India” vision of the Government,” FOR says in its study.

FOR has recommended & simplicity in retail electricity tariffs structure. It has cited one price in other commodities like diesel and petrol.  According to FOR, too many categories and sub-Categories in electricity tariffs, makes it prone to leakages and therefore emphasized the need for cost reflective tariffs necessary for the recovery of cash strapped distribution companies.

Source:  Business Standard

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