Price and performance

Power generators are reportedly concerned about the delay in issue of electricity tariff orders for 2016-17, which would clear the path for an increase in tariffs charged to consumers. Those arguing for a tariff increase say that such an increase is warranted to improve the health of the distribution companies (discoms) and enable them to procure power from generating companies (gencos). As reported in this paper, about 16 States have allowed modest increases in tariffs while 11 are yet to clear any revision. Credit rating agencies too have expressed concern over the delay and its impact on the finances of distribution companies. While finances of discoms are admittedly in disarray, with many of them running late on payments to gencos, this fact alone does not warrant another hike in tariffs. An increase in tariffs to boost the financial health of discoms and gencos should be allowed only when there are no more gains to be made from increasing efficiency.

At the distribution level, supply of free and highly-subsidised power needs to stop. Instead, the subsidy burden must be borne by the State governments which impose them on the discoms in the first place. It is equally important to curb power theft and improve billings. It is not the power tapped by the poor from transmission lines that hurts the discoms, but the under-billing of consumption by the better-off and commercial users. A lot of that can be attributed to corruption at the field level. Power theft and under-billing, euphemistically referred to as ‘transmission and distribution’ losses, continue to remain high, in excess of 25 per cent. Another aspect that needs to be considered is the falling cost of generating power. Over the past year, coal prices have declined globally and domestic production has risen. The volume of coal that needs to be imported too has declined over the past year. All that should mean lower cost of production for thermal power — which is about 60 per cent of all power produced in the country. Further, solar power is emerging as a major source of energy and is now available at very competitive rates. Spot rates of power have also plummeted, with many States with surplus production selling at a very competitive ₹2.50-3 per unit in the spot market.

It is unfair to burden the paying consumers with higher tariffs when the cost of production has declined, merely because the governments and power companies want to take the easy route. No one will contest higher tariffs for heavy users. Nor will anyone contest cheaper power to the poor and small farmers. However, politics, social obligations and commercial operations should not be allowed to complicate matters. Giving free and subsidised power to sections of society is a political decision that may be justified as a social obligation, the cost of which should be built into the budgeted expenditure of State governments rather than being forced upon paying consumers.