Maharashtra shows the way, regulator allows hike of 80-90p per unit in FY15 to pay past dues

Written by Pallavi Ail | Mumbai | Updated: Feb 6 2014, 19:45pm hrs
PowerMaharashtra govt may want to make life easier for Mumbaikars by lowering power tariffs...PTI
The Maharashtra government may want to make life easier for Mumbaikars by lowering power tariffs it recently cut rates for consumers in other parts of the state but with the citys discoms under-recovering revenues because of higher fuel and electricity purchase costs, tariffs for Mumbaikars may actually go up.

While the cost of acquiring electricity has gone up over the years for discoms, tariff hikes have not kept pace. As a result, consumers in Mumbai now owe discoms a fairly large R11,585 crore as at the end of FY12. The under-recovery or regulatory assets (RA) the difference between the revenues realised by discoms and revenues required post permitted costs and returns could rise further. The Maharashtra Electricity Regulatory Commission (MERC) is yet to recognise RAs beyond FY12. In the case of Delhi, while RAs till FY12 were R15,151 crore, they rose by a likely R4,354 crore in FY13.

At the end of FY12, Tata Power Distribution (TPC-D) had RAs of R1,757 crore including carrying costs while the number for Reliance Infra was R5,549 crore. Unlike in Delhi, where high RAs have resulted in a situation where BSES Yamuna Power and BSES Rajdhani Power are facing a disruption in the supply of power from producer NTPC, since the discoms have not been able to pay their dues, in Mumbai the regulator has been proactive. Regulatory orders over the last couple of years have allowed discoms (Tata Power, R-Infra and BEST)) to recover these assets through increased electricity charges, over a three- to six-year period.

In the case of R-Infra, for instance, this means a power tariff hike of Rs 0.87/unit in FY15 and R0.82/unit in FY16. So, were the Maharashtra government to increase subsidies by R1 per unit in FY15, the citys customers would not even feel it. And this R0.87/unit hike is over and above any hike in costs that the discoms may incur due to an increase in fuel and other costs. Between FY11 and FY14 (see graphic) coal prices rose by 82% while gas prices went up by 41% and RLNG by 152%.

The other important facet of MERC orders is that unlike the Delhi discoms, their Mumbai counterparts face less trouble raising bank finance to fund overdues.

For one, in the case of Mumbai, the overdues are to be wound up in three to six years while there is no such clarity in the case of Delhi. While the Delhi regulator allows an 8% regulatory asset surcharge, suggesting the assets will be wound up over 12 years, the reality is that the 8% does not even cover interest costs on carrying the overdues. The Maharashtra regulator, on average, allows a14.5% interest rate on the balance of the regulatory assets that are not paid back every year.