Pre-paid energy: This is one power sector reform that government should consider

Published: July 27, 2016 6:35 PM

Pre-paid energy has a potential to impact consumption behaviour across a broad spectrum. 

power sector reforms, piyush goyal, power india, power surplus india, pre paid energyBeing power surplus by no means implies that we should use the resource inefficiently. (Reuters photo)

By Kartikeya Misra

power sector reforms, piyush goyal, power india, power surplus india, pre paid energyWalkman was a stellar invention. Ipod went a step further and today’s smartphones have ensured that a gramophone or a tape recorder is consigned to a place of respect in our collective memory. Sony and the likes of Apple in the internet era succeeded in transforming consumer behaviour. Music could be carried on person in highly efficient electronic devices. Sound quality improved and your favourite music was just a click away. The way music is created, packaged, marketed and consumed was transformed.

While our nation grapples with multiple challenges on social and economic front it is imperative that reforms usher in a change in consumer behaviour to realise the intended impact. Efficient economic outcomes will be difficult to achieve without concomitant changes in consumption patterns. A case in point is the Central Government’s repeated attempts at pulling the Discoms out of red. No amount of isolated financial restructuring and introduction of new technology can bring in consumer discipline.

Populism will have its way and a large chunk of consumers will continue to pay a tariff much below the cost of service. It would be great if the in-built cross subsidy of the annual tariff order could offset the subsidy, but that’s a distant dream. Discoms depend heavily on budgetary support from State Governments and borrow much beyond their means from the market. On an average, billing efficiencies are nothing to write home about and collection efficiencies can drive a sane banker to the verge. Losses are blamed on agriculture and in absence of real time technology driven monitoring it has become very difficult to ascertain who is consuming what and paying for how much. Cutting corners discovers a whole new definition here.

Being power surplus by no means implies that we should use the resource inefficiently. There is an urgent need to ring in far greater consumption and measurement discipline. While reforms like SCADA are a welcome step they fall short of impacting the consumer psyche. Measures which impact the drawing room decision of a consumer should be focussed at. To that end, pre-paid energy has a potential to impact consumption behaviour across a broad spectrum.

While the utilities stand to gain in terms of reduced interest burden, theft reduction, better planning for short term energy purchases, arrear realization and lower bill collection cost; from the consumer’s perspective, a pre-paid recharge would imply grater consumption discipline and economy. In addition, a built in “Time of the Day” tariff ala STD tariffs of the yore, is expected to modify consumption behavior during peak hours thereby positively impacting capacity peaking. However, introduction of pre-paid regime comes with a set of challenges. Pre-paid meters are priced 3-5 times higher than single phase digital meters. A utility would be required to bear one-time cost of swapping existing digital/electromechanical meters with pre-paid meters. A Distribution Company with about 30 Lakh consumers would have to deploy a phased investment of about Rs 800-1,000 crore on meters alone. Secondly, vending cost driven by choice of technology and location of recharge needs to focus on consumption ease. Vending machines/recharge counters located at public CSCs may be a good beginning.

Another challenge which merits concern is the number of tariff lines which can be programmed into the meter and the possibility of a tariff revision during a recharge period. This may be addressed by limiting the recharge period and guaranteeing tariff for the period of recharge. In addition, a flexible approach towards credit limit across slabs may be warranted as different consumption patterns impact the distribution network/billing differently. Finally, arrear collection can be eased into the new regime by pre-programming a percentage of recharge towards outstanding arrears. This methodology can be put to good use in government offices. Government is the biggest defaulter. Assumed transfer pricing within the Government on account of budgetary support to Discoms continues to put the latter under financial duress.

Not only will the Discoms be equipped with a tool to recover long pending arrears but also provide Government with an effective check over pilferage and theft. Industry should be the next door to be knocked at, followed by domestic consumers. Internationally, while England has been the pioneer in adopting pre-paid energy regime, countries like Bangladesh, South Africa and New Zealand have benefitted largely in terms of changed consumer behavior and collection efficiency improvements.

Financial sector’s exposure to Gencos and Discoms runs into lakhs of crores. There is a need for UDAY today, as the previous versions of financial restructuring could not impact the Discom efficiency to the desired level. If distribution companies continue to seek out incremental measurement oriented reforms another financial restructuring is round the corner. We need a game changer ala Walkman. We need more responsible consumption. While not a panacea, pre-paid energy may directionally be the right approach to impact consumption behaviour for good.

(The writer is Director Industries, Government of Andhra Pradesh. Views are personal)

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