Regulators launch study to simplify power tariffs

Industry experts bat for open access, cut in cross-subsidy

Power regulators have launched an internal study to look into various options of designing ‘progressivity’ in tariffs. The trigger is the mismatch between the average tariff and cost of supply, barriers put up by states in providing open access, and high subsidy and cross subsidy.

A forum of regulators member told Business Standard that in several states, tariff structure is too complex. Each consumer category is further split into many sub-categories and such structure is preventing the consumers from responding to tariff signals. “Some electricity regulatory commissions (ERCs) have already introduced some degree of progressivity in the tariff setting. However, the actual degree of change in behaviour based on price signals given is yet to be looked into,” he said.

He explained that progressivity in power tariff rates means an increase in tariff with a higher consumption level, which helps in tariff reduction for those who are at the bottom of society.

Some ERCs are looking into an option of reduction in the several slabs within the domestic category to three slabs comprising 1-50 units, 51-100 units and 101 units and above. Such tariff structure would obviate the need for passing on the deficit between the average cost of supply and average tariff of domestic consumer category to other categories of consumers.

V Raja, former chairman of Maharashtra Electricity Regulatory Commission, said: “Competition critically is good destination to reach but that can take place only through open access. As far as designing progressive tariff for domestic consumers is concerned, it can be done through creation of balancing fund, which can be maintained at the level of power regulators.”

He suggested the government would have to continue to provide subsidy for low-end consumers (those in the 0-100 unit category) and this will differ from state to state. The fine-tuning can be done by the regulators.

According to Raja, in case of agriculture tariff, the regulators can consider higher tariff for cash crops and lower for non-cash crops.

According to Deloitte Touche Tohmatsu India’s Partner (Consulting) Debasish Mishra, despite the intention set out in the Electricity Act 2003 on progressive reduction of cross-subsidy, industrial, commercial and high-end residential consumers pay much higher tariffs than the cost to service them. “The quantum of subsidy and cross-subsidy that is needed for rural, residential and agriculture segment would only increase in the near future with rising universal access. This can only come from efficiency gains on the cost side such as lower transmission and distribution losses and lower fuel cost, as the tariffs in the subsidising categories cannot go up any more.”