The Hindu Business Line : Centre to take fresh look at tariff-setting methodology

`HONEST' electricity consumers, who have been the traditional cash cows for power distribution utilities across the country, may finally get some reprieve.

The Government is considering a proposal to unburden paying consumers (those in the billing net of utilities) from shouldering the entire quantum of the annual electricity tariff hikes.

Now, State Electricity Boards and private distribution utilities across the country follow the practice of loading their entire transmission and distribution (T&D) losses on their paying consumers, with the result that they are made to shell out money for those who are out of the utility's billing net as well as for the transmission losses and other inefficiencies of the utility.

The move follows a Parliamentary Standing Committee report submitted to the Government that asks the Centre to make changes to the legislative framework to ensure that the entire burden of retail tariff hikes is not passed on to the honest consumers.

The furore by Delhi's citizens over the recent tariff hike in the Capital also prompted the Centre to take a fresh look at the tariff setting methods now being followed.

"We are working on the recommendations of the Standing Committee. Since the setting of retail tariffs in the States comes in the domain of State Electricity Regulatory Commissions, the Power Ministry has initiated discussions with States on the issue," a Government official said.

Among the options under consideration, there could be an upper limit on the revenues that distribution utilities can raise from their existing customer base during the annual tariff revisions process.

This could make it binding on the utility to expand its customer base and bring defaulters into the billing list, thereby spreading out the burden of the tariff hike over a larger base and bringing down the effective tariff burden on the paying customers. As per the present practice, distribution utilities forward an estimate of their expenses and projected revenues in a petition called the Annual Revenue Requirement (ARR) to the State Electricity Regulators, which forms the basis for the tariff hike.

The regulator then ratifies the estimates forwarded by the utility and divides the revenue gap (that between projected revenue and expenses) over the number of paying customers, since the non-paying customers are out of the billing net.

With losses in the range of 30-50 per cent for most utilities, the effective tariff burden nearly doubles for the paying customers, while those stealing power get away without paying anything.

The Parliamentary Standing Committee on Energy had expressed concern over the practice of tariff setting.

In the Ninth report to the Government in August on power reforms, the Committee said the present practice of making honest customers pay for T&D losses of the utility was "unfair" and that the extant system of billing would not encourage distribution utilities to reduce their losses as in any case they were assured of their returns by loading the losses on the honest consumers.

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