States raise power tariffs just 6% in FY15
While it was hoped that the UPA government’s Financial Restructuring Programme (FRP) for discoms would help stem the power sector’s losses, the scheme isn’t quite working as envisaged. While the regulators of most states that signed on for the scheme have issued tariff orders for FY15, the hikes are nowhere near the magnitude required to bridge the revenue shortfall. Moreover, states such as Rajasthan, where the losses of the discoms are upwards of R35,000 crore, have not even issued a tariff order. Indeed, given that the average cost per unit of electricity exceeds the tariff by about a rupee, the sector’s losses, estimated by the Planning Commission at R71,271 crore for FY14, look like they could shoot up sharply. Only 22 of 29 states have issued tariff orders so far for FY15 and the increases are, on average, a low 6%. This is smaller than last year’s modest hike of 7% and way below the 14% seen in FY13, when several states, including Tamil Nadu and Rajasthan, had raised tariffs significantly to make up for the lower or nil increases in previous years. It is disconcerting that State Electricity Regulatory Commissions (SERC) in seven states , including Madhya Pradesh and Bihar, have opted for no revision at all for distribution utilities.
This is unfortunate because the Apellate Tribunal for Electricity (Aptel) has been asking state regulators to ensure tariff orders are filed and approved and also to ensure that regulatory assets are cleared over a period of three years. In fact, a recent study by ICRA points out that in
Uttar Pradesh, despite the tariff revision of 8.9%, the uncovered revenue gap remains high at R11,900 crore and UPERC hasn’t allowed enough a regulatory surcharge as is needed to cover the gap, nor has it put out a roadmap for bridging the gap. Where a 16% regulatory surcharge was called for, the UPERC has allowed 5.6%.
The pile up in regulatory assets will only push up losses of discoms and erode their ability to purchase power; already many of them are reluctant to procure power produced from imported coal and costlier R-LNG. This scaling back of electricity purchases, coupled with slowing demand in a sluggish economy, has driven down plant load factors (PLF)—the coal-based PLF in H1FY15 was 64.9%, lower than the 65.6% in FY14 and 70% in FY13. Another reason for lower PLFs has been the shortage of fuel. This is why the issue of compensatory tariffs for power plants based on imported fuel—like Tata Power and Adani Power—needs to be resolved at the earliest, and why the government needs to ensure regulators raise tariffs adequately. There is no doubt a reduction in ATC losses is critical to electricity reform, but in the short run, not hiking tariffs just makes the problem worse as the costs of servicing regulatory assets also pile up.