Why blame the discoms?

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SummaryElectricity tariff revision in Delhi is round the corner. Politicised as it is, this subject has always evoked strong public emotions.

Power purchase costs of Delhi power utilities rose 300% in the last decade but the tariff revision was limited to 65%

Electricity tariff revision in Delhi is round the corner. Politicised as it is, this subject has always evoked strong public emotions.

A typical Delhi resident has experienced between 100% and 200% increase in prices of various goods and services in the course of the last decade. Yet he has accepted it without raising much hue and cry. However, when it comes to electricity tariff revision, vote bank politics by political parties and activists always come into play.

As an outcome thereof, tariff increase in Delhi, as in other parts of the country, has not at all kept pace with sharply rising costs. Stagnant tariff over a period of time has led to huge build up of unrecovered costs (regulatory assets), to the tune of almost R20,000 crore, impacting sustainability of operations for all three private utilities in the country’s capital.

The entire reform process is at risk for want of cost-reflective tariff. It is in this context that it is important for all the stakeholders to understand why a hike in tariff is necessary.

Electricity tariff as seen by consumer comprises of three components—generation, transmission and distribution. Generation and transmission together constitute power purchase cost and account for approximately 80% of the total cost of Delhi distribution companies. The power purchase cost (PPC) has seen a staggering 300% increase (R1.4 to R5.7/unit) during the last decade.

As 100% power is procured from the central and state government generating units, with tariff determined by respective electricity regulatory commissions (CERC/DERC), it is needless to say that distribution companies have absolutely no control on this most critical component. The increase in PPC has been mainly on three counts. First, higher coal imports at over four times the cost, necessitated by constraints in domestic coal production. Second, pressure on cost in recent years has also come from greater component of newer plants with higher fixed cost. Third, a sharp rise in both production and transportation cost of domestic coal has played its role.

One of the most critical challenges faced by the power sector in India today is exceptionally high commercial losses. The focus on containing theft in Delhi has led to unprecedented reduction in commercial loss (theft of electricity) from 45% at the time of privatisation to 5% now. This loss reduction is the single most important factor responsible

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