Cutting power tariffs in Mumbai, without spending anything

Written by Pallavi Ail | Mumbai | Updated: Mar 5 2014, 06:43am hrs
Power tariffIn FY14, the only households who migrated from R Infra to Tata Power were those who used less than 300 units a month. Reuters
The large gap in tariffs between Tata Power and R Infra is what allowed Maharashtra chief minister Prithviraj Chavan to reduce tariffs for small users in Mumbai, without spending even a fraction of the Rs 700 crore each month that he has committed to in the rest of the state. But the reason why Chavan restricted himself to talking about households consuming less than 300 units of power whom he said could freely migrate to Tata Power from R Infra was that the Maharashtra Electricity Regulatory Commission (MERC) has put severe curbs on consumer migration in other categories. And while Tata Power is contesting MERCs August 2012 ruling in the Appellate Tribunal for Electricity, the MERC cross-subsidy surcharges are so high this was part of a 2013 ruling migration isnt going to become a reality for larger consumers.

Which is why, while 30,530 customers migrated from R Infra to Tata Power between October 2009 and March 2010, this jumped to 96,956 in FY11 and 116,808 in FY12; after the MERC order, however, the number fell to 91,972 in FY13. And while it rose to 97,168 in FY14, this comprised only low-usage residential customers.

In FY11 and FY12, by contrast, around 15% of those migrating were high-paying commercial and industrial users. Indeed, in FY14, the only households who migrated from R Infra to Tata Power were those who used less than 300 units a month.

Around 4,500 customers who had migrated to Tata Power, in fact, chose to come back to R Infra in FY14 since the regulatory charges were very high.

While shifting from R Infra to Tata Power makes sense for smaller consumers since this lowers their tariffs by around half, at the level of industry/commercial users, the move makes little sense.

Take commercial users who, in FY15, will pay Tata Power Rs 8.31 per unit while they will pay R Infra Rs 9.23, or 11% more. Were these commercial users to shift to Tata Power, based on MERCs regulatory surcharge order of August 2013, a tariff of Rs 13.36 will have to be paid. In other words, it is cheaper for customers to stay on with R Infra.

The way the tariff is decomposed is simple. The energy charge for this group is Rs 7.29 in the case of Tata Power and Rs 7.36 for R Infra. In addition, since MERC has built up regulatory assets in the case of R Infra that is, R Infra has incurred losses of Rs 5,549 crore on its suppliers for year consumers have to pay an additional Rs 1.23 for every unit of electricity they consume in FY15. Add another 64 paise per unit by way of wheeling charges (for using the power lines owned by R Infra) and a cross-subsidy surcharge of Rs 4.04, and the total cost of migration is significantly higher.