COSTLY ELECTRICITY SURPLUS PRODUCTION

Delhi election is over for long. The debate is still rife as to how Delhi government is distributing power cheaper along with free electricity upto 200 units. It is needful to understand as to why such schemes of cheap and free electricity have not been made available in other states in India like UP, Rajasthan, Karnataka, Bengal or Bihar. Summer is going to arrive soon when the consumption of electricity will also increase. The state distribution companies (DISCOMs) have already increased the electricity charges. States like UP and Rajasthan have recently increased the electricity tariff for consumers as many other states had already increased the cost for consumers as recently as December last year. What we need to understand is that the increase in electricity cost is not due to less supply or less production -- rather increase in cost is due to improper or non-implementation of electricity reforms and corrupt practices of the government to hide the inefficiencies, irregularities and shortcomings of government owned distribution companies. 

The consumers have been trapped into the  complicated cobweb of unsuccessful electricity reforms and tariff structures making them unable to understand the intricacies of broad and multiple tariff slabs applicable to various categories of consumers. The consumers often do not know as to which category their tariff structure belongs to. Moreover frequent load sheddings and power cuts often give the impression to the consumers that India is a power deficient country due to paucity of power generation and transmission. Whereas in reality India has power surplus capacity for production and supply.

It is a fact that India has the surplus capacity to produce electricity. India is the 3rd largest producer of electricity in the world. The production capacity has increased from 124 GW (Giga Watt) in 2006 to 344GW in 2018. Today the installed capacity of generation available in India is double than the demand for electricity. We have an impressive growth rate of 8.9% of production capacity which is a way ahead, near double, than the growth rate of our current GDP.

India even has the capacity to meet the requirement of peak demand. Let the consumers understand that demand keeps changing in 24 hours in every state due to seasonal, industry or farmers' requirements. Hence there is a time phase/s of peak demand of electricity within 24 hours. Our production capacity is even comfortably capable to meet the requirement of peak demand. Today the electricity generation capacity of 344 GW is also 5% more than the requirement for peak demand. That means the growth rate is much higher, ie, 8.9% than the demand rate of 5%. The country is expected to have peak demand of 235 GW by 2021-22 as per National Electricity Plan 2016. Our production capacity is 344 GW. In reality we have much excess generation capacity even for our requirement after two years. All these data point towards the fact that there has been a visible increase in production capacity today than before and we do not have the capacity crunch to produce electricity..

Next to generation is transmission of electricity to the distribution companies. The country recorded an increase in transmission capacity at an impressive rate of 7% between 2012 and 2018. Therefore capacity to transport generated electricity through transmission network to distribution companies has increased to reach upto 3.9 lakh Km transmission line in six years. 

Today we can even export electricity due to our surplus generation capacity if India is connected into international grid.

Electricity network works in the following ways.

As said above we have a national grid of 3.9 lakh Km long transmission line. It is owned, operated, and maintained by state-owned Power Grid Corporation of India Ltd (PGCIL). There are 5 regional (North, South, East, West and Central) power grids in India, which are interconnected to establish the National Grid.

The national grid collects from every mainland sources of India the electricity generated through various ways like coal or gas fired or nuclear reactor operated thermal power plants, hydel power plants usually located in dams on rivers and power generated through wind or solar energy. The power thus collected from all such sources by the grid is then distributed through feeders --  from regional to state load despatch centres (SLDCs) in states to local transformers to reach us to feed our domestic, industrial, commercial and agricultural needs.

We have cross border transmission links too to import electricity from Bhutan and export to Nepal, Bangladesh and Myanmar. India has plans for undersea interconnection to Sri Lanka and power pool among all Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation(BIMSTEC) nations through interconnection between Myanmar and Thailand.

So there is no shortage of electricity production in India. Even the transmission capacity is much more to cater to the demand for electricity. There is no reason to relate the increase in cost of electricity to power cuts due to shortages in our power generation, evacuation and transmission capacities. On the contrary we have an ideal business model because we are power surplus in generation and transmission. 

The consumers as well as DISCOMs even have the freedom to avail open access facility to purchase power at will from Power Exchange ever since the implementation of Electricity Act 2003. It is not mandatory for the Delhi or UP consumers or consumers of any state to buy electricity from their own State Distribution Companies (DISCOMs) itself. Today we have Power Exchange like Stock/Commodity Exchange where the electricity rate is cheaper and the consumer has the liberty to buy power from any DISCOM of the country through Power Exchange. Power Exchange provides electricity cheaper  as the generation companies sell power to Power Exchange at competitive prices. Therefore if the electricity cost is say around Rs 7/- per unit in Delhi DISCOMs (BSES, TPDDL, NDMC-PS) the same can be booked and purchased at around Rs 4/- or Rs 5/- per unit at Power Exchange. But in practice neither the consumers nor the DISCOMs are able to purchase power at cheaper rates from Power Exchange. DISCOMs itself purchase power from generation companies after paying interest on pay back period of 3 to 6 months. Subsequently the consumers booking their power purchase at the exchange for cheaper rate becomes costly because ultimately power will be supplied at consumer door step by these helpless DISCOMs only, already purchasing and distributing electricity at higher cost directly from generation companies due to interference of state government and regulators. 

It is a hard fact that electricity tariffs are high in India and is sold at Rs 8/- to Rs 9/- per unit on an average inspite of India being world's 3rd largest producer with generation and transmission capacity much higher than the demand. 

In order to understand the structural fault in power sector the government appointed Crisil in April last year to prepare a report to investigate as to why India cannot supply quality, uninterrupted power at cheaper tariff to consumers inspite of surplus generation and transmission capacity. 

Crisil submitted her report to Niti Aayog just recently. It is an excellent investigative detailed report on Power Sector. The report lay bare the failures of steps taken for power reforms till date in detail one by one. The findings in Crisil Report have been to draw the government's attention to understand if Delhi can supply electricity cheaper why other states can't. 

In the same report Crisil brought to light the failure of Ujwal Discom Assurance Yojna (UDAY) introduced in 2015-16. The UDAY was unable to fully address industry woes. UDAY scheme was for financial turnaround of and revival package for power distribution companies (DISCOMs). The scheme failed because under the UDAY scheme, states were made responsible to bear the burden of the losses of DISCOMs. It is again a classic practice of the present government like any other economic model UDAY scheme was also brought in haste without applying sufficient time on homework for making the scheme deliver results on ground. UDAY scheme failed.

Addressing an event organised by Indian Electrical & Electronics Manufacturers' Association (IEEMA) in Sept, 2019, the then Power Secretary SC Garg said the government is working on the revised version of the scheme UDAY 2.

On the other hand Crisil is in all praise for Delhi model which according to its report Delhi is performing better due to intelligent and pragmatic implementation of electricity reforms 2003 in comparison to other states.

According to Crisil there is structural flaw in tariff structure of DISCOMs determined by state electricity regulatory commissions (SERCs), against which no reform measures were initiated by any government from past to present to rectify the tariff structure.

The complicated tariff structure is the root cause of increased electricity rates. Electricity bills are raised by the DISCOMs based on fixed charge and Energy charge. 

Fixed charge is mandatory load based (1 kv, 2kv, 5kv …. and much higher ones in commercial) connection charge is paid by consumers inspite of non-use of electricity. The DISCOMs recover through fixed charge cost of generation to be paid to generation companies and transmission and grid maintenance cost to PGCIL and the cost of interest on capital investment by DISCOMs.

Energy charge is the actual electricity consumption charge. 

The DISCOMs are hard pressed due to too much interference of state government and regulatory bodies to determine and impose their unrealistic rationale in tariff structure. The companies can't even fully recover their investment on fixed charges. For example, the amount of government subsidy schemes for consumers, government utilities, metro rail and railways, street lights for MCDs are not paid back to DISCOMs in time and remains pending for 3 to 6 month. As a result the DISCOMs recover the loss on fixed charges after juggling through the tariff network of complicated energy charges from the consumers. 

On the other hand state power production and supply companies book power supply deals for longer period with DISCOM on state guarantee and sell power after adding interest on recovery period of 3 to 6 months as the case may be. The DISCOMs have no option than to purchase power at higher price in order to manage their internal recovery cycle and to buy time to pay back the generation and transmission companies  upon receipt of government subsidy amount, collection from consumers -- all that takes some time as long as 3 months.. 

That is why electricity for consumers become costly inspite of cost after generation and transmission of electricity is much cheaper. 

One of the reasons for cheap electricity in Delhi is because the revenue loss due to the gap in recovery between fixed and energy charges in Delhi is as low as around 19 paise in comparison to Rs 2/- in Andhra Pradesh, as Crisil reports.

Therefore cheap electricity is available but the tariff structure keeps it costly for consumers due to government interference in fixed charges.

Compared to other countries India has very complicated electricity tariff structure. Statewide energy consumers have been divided into 9 to 18 categories. Even consumers do not know. Category is not mentioned in the bill. There are 14 to 72 statewide tariff slabs. It is infact as difficult as rocket science for consumers to determine their category and tariff slab. 

Freedom to purchase power through open access is also a farce as already mentioned above. Even the Crisil report says that ever since Electricity Act 2003 till date the market of open access or freedom to purchase facility and supply of power at will at consumers' door steps through power exchange for cheap electricity is only on paper. Ultimately power purchased by consumers at power exchange has to be routed through these DISCOMs which adds so many types of supply and subsidy recovery costs etc to make the power much costly than the otherwise electricity cost charged for power distributed by DISCOMs itself. In a way the DISCOMs discourage the market of open access. In such a prevailing condition consumers are left with the only option to purchase comparatively still cheaper power from DISCOMs only.

The government also seems to have no intention to reform the tariff structure to sell cheap electricity due to extreme corruption in the system. The multiple tariff structure and rate slabs for consumers are decided by the officials of the electricity departments and State Electricity Regulatory Commissions. 

It is the dire need of the hour that the government should allow the market players than government bodies to decide and set the tariff structure as part of reform implementation. There is no need for 9 to 18 consumer categories as 5-6 categories, namely domestic, industrial, commercial, agricultural, government consumers, are enough. If the market players are allowed to decide and draw out rationalized tariff structure then the entire vicious practices of state government regulatory bodies and state interference of deciding on whole mechanism of erroneous billing due to unrealistic electricity charges, ways of increasing electricity charges and waiving off bunglings in electricity bills for their own vested interest will go out of their hold. Telecom industry is a current example of providing better services at low competitive tariff structure ever since the government decided to hand over the industry to market players.

The government gave packages to waive off burden of payment outstanding on three occasions from 2001 to 2015 to Distribution companies the erstwhile electricity boards unbundled into DISCOMs when Electricity Act 2003 made it mandatory to divide state electricity boards into separate entities for handling generation, transmission, distribution and trading functions. But still the DISCOMs are running at loss. Their current gross loss stands at Rs 27,000 crore. In addition total outstanding of Rs 81,000 crore they owe to the power producing companies. 

Energy charges have already been increased. Now the country should also remain prepared to pay more for fixed electricity charges which seems imminent in the coming summer. So the consumers are going to pay more during the approaching summer months.

The nation has witnessed a collapse of Electricity Act 2003. Crisil report suggests to device plain simple tariff structure than mind boggling complex multi tariff slabs upto 72 and consumer categories upto 18. Crisil is right because more the complex more the confusion that allows scope for arbitrary charges on electricity and broad room for corruption. Today our generation companies are drawing only 50% of installed capacity of power and  if full capacity power is drawn we do not have demand to consume. 

We have excess generation capacity but still our DISCOMs are running at loss. Ultimately the electricity charges are increased to recover the losses. It is the toxic power management system of the government allowing electricity to become costly year after year. It is not that the government doesn't know. Crisil report has been submitted to Niti Aayog and Niti Aayog must have submitted the same to Power Ministry. The government seems to have given up and kept the Report aside and still sitting on it without action to implement the measures suggested in the report.

Reforms need to be initiated by the government where it is required. The government has to show her courage and strength to do so. Now the government knows as to what is ailing the power sector. The malady has been diagnosed.  Workable remedy and the resultant solution are also known to the government to cure the ailing Power sector. If the government is still sitting unconcerned it is because of a willing suspension of sincerity and concern for taking initiative to implement the required reforms and disburse benefits thereof to the consumers. 

If the government is still not taking the initiatives for power reforms where it is required it may not be hard to deduce that 

1. vested interest of the government knowingly encouraging a cartel to produce costly energy because government owned generation company like NTPC is producing costly electricity,

2. political or self interest of the government is the cause of protecting inefficient corrupt practices of state government owned power companies controlled by state regulatory bodies, or

3. self interest of the power companies not allowing the market of open access or freedom to purchase cheap power by consumers at will at their door steps. 

The reasons discussed above are not only responsible to push the state DISCOMs but also the private distribution companies under financial stress due to heavy debts and losses.

To end with Delhi model for which Crisil report bestowed appreciation will convince us as to how under the prevailing stressed circumstances Delhi is selling electricity at cheaper rates and free electricity upto 200 units to all consumers. It is all due to pragmatic implementation of power sector reform 2003. As a result

a.) Delhi reduced the tariff structure, rate slabs etc which eliminated the scope for losses and financial damages due to confusion and bungling

b.) Delhi government tried to regulate fixed charge in such a way so that generation cost of the companies could be recovered

c.) deficit or revenue loss element due to difference between fixed charge and energy charge is the lowest in Delhi - around 19 paise.

d.) Delhi had the capacity to bear the revenue losses due to Delhi's surplus budget (as per CAG report). Delhi did not have a loss budget in comparison to other states.

Cheap power is produced in India but consumers do not get power at cheaper rate.