Macro Economy

Your power bill may soon turn lighter

Twesh Mishra New Delhi | Updated on November 21, 2019

Advance payments by Discoms cutting Gencos’ working capital needs

People across the country will have something to cheer about as they can expect lower electricity bills in the coming year or so.

According to officials, power tariffs can fall 3 to 5 paisa per unit across the country.

This is because power distribution companies (Discoms) have been paying in advance for the electricity they buy from generating companies (Gencos).

Power Ministry letter

The expectation of a fall in tariff is raised by a letter written by the Ministry of Power asking the Central and State Electricity Regulators to reduce the fixed cost component allowed to Gencos because of the reduced working capital requirement.

According to officials, Gencos will roughly save a little over ₹4,000 crore in working capital requirement and the regulators have been asked to ensure that this saving is passed on as reduced tariff to consumers.

“It has been observed that in case of advance payment even for a day by the distribution company to generating and transmission company or by the consumer to the distribution company, there may be either no requirement or reduced requirement of working capital by generating company or transmission company or distribution company (in case of prepayment by the consumers). The present system of rebate in case of timely payment does not fully compensate against the reduced requirement of working capital,” the letter from the Ministry of Power to the regulators said.

Last week’s letter said the Appropriate Commission (State or Central) may determine the reduction of Generation/Transmission Tariff in case of full or part advance payments by Discoms.

The Ministry also asked the regulators to furnish a monthly Action Taken Report to the Forum of Regulators.

“From August 1, the government has come out with an order that all the distribution utilities have to pay in advance to the generation company or furnish a letter of credit. Distribution utilities are paying in advance and even a one-day advance has been allowed by subsequent amendments,” a top official at a private Discom told BusinessLine.

“... Discoms are foregoing the 45-day credit period provided in PPAs and funding payments to Gencos at market rate, based on the strength of their balance sheet. The current rebate mechanism for timely payment does not remunerate the Discom, but the Genco ends up with a reduced working capital requirement,” the official said.

Published on November 21, 2019

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