A convoluted tariff regime, under-recoveries, power theft, and unpaid subsidies are threatening the sustainability of the Delhi discoms

Delhi Government is looking at various options to address twin problems facing its three power distribution companies (discoms) namely BSES Rajdhani Power Limited (BRPL), discom for South & West Delhi; BSES Yamuna Power Limited (BYPL) — discom for Central & East Delhi; and Tata Power Delhi Distribution Limited or TPDDL - discom for North Delhi. These are (i) “Regulatory Assets” or RAs of Rs 27,200 crore lying in the books of these discoms; (ii) an equally staggering amount of Rs 26,500 crore they owe to power generation and transmission companies viz. Indraprastha Power Generation Co. Ltd (IPGCL), Pragati Power Corporation Limited (PPCL) and Delhi Transco Limited or DTL at the end of September 2024.         The discoms are expected to sell electricity to the consumers at tariffs –duly approved by the Delhi Electricity Regulatory Commission (DERC) – that are set in a manner such that the revenue generated from sale at these tariffs fully cover the power purchase cost plus the cost of wheeling and distribution. The requirement is mandatory under the Electricity Act, of 2003. But, this is rarely complied with.

Under a highly convoluted regime, the tariff charged from households (HHs) consuming up to 200 units a month is Rs 3 per unit which is just about half of the average cost leading to an under-recovery of Rs 3 per unit. Including levies adding to 44.6 per cent, the shortfall comes to Rs 4.3 per unit (3x1.446). For HHs consuming between 201 and 400 units, the tariff is Rs 4.5 per unit implying an under-recovery of Rs 1.5 per unit. Including the levies, this comes to Rs 2.2 per unit. These under-recoveries are cross-subsidised by charging more from industries and businesses for which the tariff can go up to a high of Rs 16 per unit.

The irony is that despite charging exorbitant rates from industries and businesses, a good slice of under-recoveries from HHs consuming less than 400 units a month remains uncovered. Additionally, the Delhi government doesn’t want the latter to even pay the small tariff of Rs 3 per unit (courtesy, of Kejriwal’s freebies). Thus, discoms are told not to raise any bill on HHs consuming up to 200 units even as HHs consuming up to 400 units get a flat deduction of Rs 800 per month from the bill amount. Though the government promises to reimburse them for these subsidies from the state budget, this promise is held more in breach. This increases discoms’ losses which are compounded by large-scale power theft.

Where do RAs fit in? RAs are created when state electricity regulatory commissions (in this case, DERC) accept that the tariffs don’t cover discounts’ purchase costs but don’t raise rates. The gap between the cost and revenue generated from sales at tariffs (albeit unrevised) for supplied power, is booked by discom as receivable and classified as RA. This is contrary to the  Electricity Act (2003) and the National Power Tariff Policy (NPTP) which says that “tariffs must reflect costs and regulatory assets should not be created”. In December 2022, the Ministry of Power (MoP) even warned against creating a pile of RAs. But, all these regulations/warnings have fallen on deaf ears.

All losses incurred by discoms in Delhi during the last 11 years or so have been shown in their books as RAs. Regrettably, the RAs persist despite subsisting mechanisms to enable discoms to offset cost escalation by suitable increases in tariff. As per the order issued by MoP on November 9, 2021, discoms are allowed to impose a surcharge known as PPAC (Power Purchase Agreement Cost). Levied as a percentage of the ‘total energy cost and fixed charge component’ of the electricity bill, the surcharge is meant to compensate them for variations in the fuel and power procurement cost. Effective from July 2023, the DERC had last increased PPAC vide its order dated June 22, 2023, by 9.42 per cent for BYPL, 6.39 per cent for BRPL and 2 per cent for TPDDL. The current PPACs for these discoms are 31.6 per cent, 27.08 per cent and 33 per cent respectively.         Moreover, DERC has allowed discoms to levy a surcharge of eight per cent.

This is intended to plug any shortfall in revenue vis-à-vis the cost still left unplugged after collection of PPAC. Despite these two impositions, the discoms continue to report a substantial shortfall in their revenue from the sale of electricity which is manifest in cumulative monumental RAs of Rs 27,200 crore. It is a manifestation of several glaring pitfalls: (i) the Delhi government isn’t reimbursing discoms for the subsidies they give to target consumers on its behalf; (ii) large-scale power theft continues unabated; (iii) discoms have been submitting inflated bills/claims and other financial wrongs; (iv) inefficiencies get full protection. Hesitant to sanction tariff hikes against these extra/unjustified costs, DERC chooses the easy option of putting all these under RAs.

The idea of creating RAs is flawed. When, a discom petitions DERC to allow any cost increase in tariff, the latter can either reject or accept. In case of acceptance, it should take the process to its logical conclusion by sanctioning the requisite tariff hike and notifying it. It can’t leave things hanging in the air by accepting but not ‘approving’ and ‘notifying’ the tariff hike. Unfortunately, this is what the DERC has been doing for over a decade. This has dangerous consequences.

First, once recorded in their books as RAs, discoms will leave no stone unturned in recovering the money say by getting sanction of a steep hike in tariff to make up for the entire cumulative deficit in revenue. Indeed, the matter had gone right up to the Supreme Court (SC) which in an order given in early 2023 had directed the DERC to let discoms recover their RAs. This could lead to a 100 per cent hike in tariff.

So, the regulator decided to contest that order. Second, until such time the requisite tariff hike is actually sanctioned by the DERC, the RAs can’t be treated as an asset. Hence, there remains every possibility of the loans taken from banks and financial institutions (FIs) for funding them becoming non-performing assets (NPAs). Moreover, the banks/FIs may not give more to discoms and their suppliers namely IPGCL/PPCL/DTL more loans. Third, the discoms can leverage the ambiguous classification (neither outright rejection of a claim for tariff hike nor approval) to present claims to the DERC which the latter may not be willing to accept.

This leads to substantial claims getting bogged down in legal disputes at the appeal level or in higher courts. To conclude, providing for RAs in the books of discoms is a bad practice. Apart from discoms, it also puts the power generators and transmission companies at serious risk. It can impair the balance sheet of banks and FIs who have given loans to them.

It could mean a steep hike in tariffs on supplies to industries/businesses besides HHs consuming more than 400 units a month. To cap it all, it provides a ‘cover up’ for financial irregularities and corruption. The practice must be shunned. As for the RAs already piled up, a thorough enquiry should be ordered to look into irregularities followed by recovery of money from those found guilty. The discoms should be ‘unshackled’ from the controls of the State government. If the latter wants to subsidize or provide free power to certain consumers, the money should be given to them directly.

(The writer is a policy analyst; views are personal)