Delhi doesn't get this power game

Last year, Delhi's Resident Welfare Associations (RWAs) scored a point when their protests against power tariff hikes yielded positive results. While the Supreme Court last month permitted the Delhi Electricity Regulatory Commission to announce the tariff for the current year, referring the matter of depreciation rate to the appellate tribunal again, RWA representatives need to evaluate the rationality of their call for non-payment of electricity bills to the tune of 50%.

The current level of Aggregate Technical and Commercial (AT&C) losses in Delhi is 38.5%, of which a certain percentage may be on account of theft; the remaining part is transmission and distribution (T&D) losses that are part and parcel of the power distribution business and are recovered in the cost of the product. The key question is, What should be the allowable level of loss in the Delhi distribution businesses? Evaluating the state of the T&D system and the challenges that it posed, the government, right or wrong, agreed on a path of loss reduction, which has been overachieved by the distribution entities.

If however, for the sake of argument, we assume that the T&D loss level in the area of supply of BSES Rajdhani Power Limited (BRPL) and North Delhi Power Limited (NDPL) should not be more than 25% and that in the BSES Yamuna Power Limited (BYPL) area not more than 27.5% today, given their characteristics, and we assume that the collection efficiency is maintained at the level of FY 2005-06 (95%), then the allowable weighted average AT&C loss for Delhi would work out to 26.9%. On these assumptions, the RWAs' contention on extent of non-payment of bills would reduce, in simple terms, from 50% to 11.6% (38.5% - 26.9%).

Carrying the argument forward, this loss level would result in a saving of Rs. 586 crore to the consumers and Rs. 307 crore to the utility, in accordance with the benefit-sharing mechanism laid down in the policy directions issued by the Delhi Government. Adjusting these savings to the Aggregate Revenue Requirement (ARR) of 2005-06 would result in a reduction in overall average tariff ranging from 8% to 15% approximately depending on regulatory assets amortized.

Domestic consumers are currently required to pay an average tariff of Rs 2.80 per unit, which is lower than the average cost of supply for Delhi by Rs 1.16 per unit. The savings due to reduction in AT&C losses, in this hypothetical scenario, would result in 5% reduction (14 paise per unit) in the average domestic tariff assuming the same level of cross subsidy and that the entire regulatory asset is passed on in 2005-06. However, in case the consumer tariffs are aligned with the average cost as required by the Electricity Act 2003, there should be a net increase in existing average domestic tariff to the tune of 97 paise per unit (35% increase over existing level) despite the assumed loss levels. In other words, the domestic consumers of Delhi need to realize that not only have they enjoyed subsidies over the last several decades but continue to benefit from the existing cross-subsidies which the DERC has not started addressing as yet.

Hypothetically, once again, if we assume that any loss level above 26.9% is due to theft and that the Delhi Government is to subsidize the domestic consumers to the extent of this difference, then the total subsidy burden on the Government would be approximately Rs 87 crore.

Against the foregoing, the consumers have to realize that the Government will not be able to shield them from a tariff hike for long. With the Electricity Act 2003 mandating ERCs to gradually eliminate cross-subsidy, industrial and commercial categories should see a reduction in their tariffs. We do not see representatives of these categories clamouring for an immediate move to elimination of cross-subsidies. Also, as brought out above, theft accounts for a much smaller portion of the tariff than the 50% being claimed by RWAs.

The RWAs and the consumers need to realise that there are several other factors that influence the tariffs to various consumer categories and have resulted in its increase overtime. For instance, the average power purchase cost of the discoms from the Transmission Company (Transco) has increased by 25% (in real terms) in FY 2005-06 over FY 2003-04 and the increase in the ARR (expenses plus return) of the discoms over the same time period is 17%. The commensurate increase in domestic tariffs in real terms has only been 5%, again clearly indicating an increasing cross subsidization by other consumer categories.

In the light of the above, RWAs need to appreciate the presence of an Electricity Regulatory Commission and work to strengthen this institution. Widespread public outrage by the consumers and the subsequent decision by the Government to roll back the domestic tariff goes against the rationale for creating an independent body for setting tariffs and protecting consumer interest as mandated by the Electricity Act 2003.

The RWAs have an important responsibility of sensitizing consumers to actively report theft in their areas. Such involvement and efforts from consumers will not mitigate any inefficiencies present in the system but also result in better appreciation of efforts made by the Government, utility and the Regulator to improve Delhi's power situation.