Discom discipline

The Power System Operation Corporation (Posoco) cannot be faulted for recently invoking the Electricity (Late Payment Surcharge and Related Matters) Rules, 2022 against 12 States and a UT. It stopped these States and their Discoms from buying spot power on the exchanges till they cleared their late payment surcharge (LPS). As per the law, the States have submitted a repayment schedule of their dues to the generation companies (which can go up to a maximum of 48 monthly instalments) which includes the LPS. They must pay up at least the LPS to the gencos that is due for the month to ensure that they can buy and sell power. That so many States have not paid up even the penalty is irresponsible indeed. The latest Rules will ensure that there is some flow of funds to the gencos. At present, Discoms owe gencos over ₹1.2 lakh crore. Discoms have been perennially in the red, cash-strapped and mismanaged. Repeated attempts to help them turn the corner, including the Ujjwal Discom Assurance Yojana (UDAY) launched in 2015, have not really helped. Restoring Discoms to some financial health is an exercise that can take half-a-decade, if not more, in the best of circumstances — assuming that technical and regulatory reform proceeds smoothly, and the Centre and States work together. However, the liquidity needs of gencos cannot suffer on account of these wrangles. The LPS Rules can really help here.

The health of Discoms is crucial to keep the wheels of the economy running. Various schemes are in operation (such as the ₹3.05 lakh crore package announced in the Budget 2021-22) to improve the quality of their assets — in the form of grid infrastructure, smart meters and feeder separation for agriculture and domestic use. This will reduce power leakages through billing efficiencies as well as ensure that tariffs can be changed over the time of day to ensure that the difference between peak and off peak loads is smoothened out. However, the knotty issue of fixing tariffs in a way where industrial users do not subsidise residential ones has not been given the attention it deserves. State regulatory commissions often rubber-stamp tariff subsidies or hikes by governments. These bodies should have a diverse stakeholder representation for objective decision-making. The financing for Discoms’ infrastructure should be ring-fenced from their operational needs. As for the latter, last year’s NITI Aayog report on Discoms observes that AT&C losses remain high at over 20 per cent, with several States above this average. Discom losses started climbing after 2017-18, while Covid made matters worse; this was after showing a declining trend in the five preceding years. AT&C losses can be arrested with better infrastructure. The financially stronger States could do better at improving their systems, as is the case with feeder separation, which also points to the need to monitor the performance of financially weak States.

Discoms, as the report says, should exit from unviable legacy PPAs. Long-term PPAs account for 80 per cent of their electricity purchases. A lock-in for commercial buyers must be enforced as they shuttle between the open market and Discoms. Above all, Discoms need professionalism and independence. Their absence is borne out by the recent payments default.

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