Editorial- July 2018

CERC has issued a consultation paper that would determine terms and conditions of tariff regulations for the next five years, the duration of April 1, 2019 to March 31, 2024. Stakeholders are to respond by July 15, 2018. The paper should have shown more effort and exactitude regarding the pressing problems of the sector – improving PLF, relieving stressed assets, pooling of power resources to arrive at affordable tariffs for 24×7 quality power for all households. Instead what we get is routine stocktaking and some administrative measures which will provide only minor relief to discoms and gencos.

The bad news list is known. PLF of coal based thermal plant is low and expected to fall further. It touched 59.68 pc in FY 2017-18 and will go down to 56.50 pc in 2021-22, as per a CEA study. Discoms are not doing long-term PPAs anymore because when demand dips in their distribution networks, they don’t want to incur fixed cost associated with thermal power plants. Discoms are opting for short term contracts and requisitioning their short-term needs from energy exchanges.

To encourage long term PPAs, CERC has proposed changes in the methodology of fixed charges. This is to be spilt into two – Fixed Charges (basic) and Variable Charges (incremental). These are in addition to Energy Charges. Presently, tariff is divided into two parts – Fixed Charges and Energy Charges.

The components of fixed charge (basic) comprise of depreciation for repayment, interest on loan and guaranteed return to the extent of risk free return and part of operation and maintenance expenses. Variable Charge will cover incremental return above guaranteed return and balance O&M expenses. Energy Charges will cover fuel cost, transportation cost and taxes, duties of fuel. All these costs are recovered through tariff.

In the sphere of transmission service too, the cost for access and transmission have been segregated reflecting the present market realities. Transactions are now short-term, medium-term and participants may seek access to transmission but may not avail transmission service unless actual transaction is there. So this rationalization is a necessity. Then there are compensations on coal quality for gencos, enhancements in debt to equity ratio and lifecycle for hydro projects.

CERC has stated that the average cost of purchase of power by discoms is Rs 4.11 per unit and sale price by them to the end customer is Rs 6.67 per unit as of FY 2016-17. This is the biggest item on the agenda and this is just left hanging. What should be the tariff for affordable power, what are the strategies for efficient pooling of resources, the consultation paper shows no toiling on these issues.