Meet the Expert. ‘Cheaper electricity is not all that easy’

Pramod Deo, former Chairperson, Central Electricity Regulatory Commission (CERC) is direct and forceful. He minces no words to put things in perspective. Business Line recently caught up with Deo on the sidelines of a training programme organised by the IPPAI Regulatory & Policy Research Institute in collaboration with the India Smart Grid Forum.

He shared his views on a number of issues. Edited excerpts from the interview.

The success of UDAY (Ujwal DISCOM Assurance Yojana) hinges on States undertaking regular tariff hikes, wherever required.

But, according to ICRA, the average tariff hike for 2016-17 has been only 5 per cent. Does this suggest that we are off the UDAY track?

In 2016-17, Tamil Nadu, Kerala and West Bengal went to the polls. So, you could not have expected them to revise power tariffs. What matters is whether they do it next year. To expect that States would hike tariffs, particularly when they have such an event (elections), is like asking somebody to commit political suicide.

For other States, getting their balance sheets in order and following yearly tariff hikes to reflect the full cost of running their business is important.

The discoms have to also improve their efficiency, for which they will require network strengthening, which will mean incurring capital expenditure. This will finally add to the tariff in later years because the fixed cost gets built into your tariff.

So, to say that tariffs will go down is difficult, unless you are talking only about commercial losses, which can be controlled and do not require any capital expenditure. But, the discoms are government-owned entities and have certain limitations. So, increasing the efficiency dramatically becomes difficult. The employees who are hand in glove with big consumers in pilferage have their own political links.

What do you think of UDAY?

UDAY gives the discoms an opportunity to clean up their balance sheets. There is talk that people will be getting cheaper electricity. But, that is not easy and it will be a long process because the coal linkages of power plants have to be reassigned. Only then will it be possible. Seventy to eighty per cent of the cost of power comes from fuel cost. What you need to see is the price line of all commodities and how power tariffs have moved relative to that.

CRISIL had done a study a few years ago that showed that the price index of power tariffs is actually lagging behind the general price index.

Also, certain performance improvement goals have been given to the state discoms. It is now for the State government to see that these goals, even if not fully achieved, are not lost sight of.

Tariff hikes are a politically sensitive subject. Do the State Electricity Regulatory Commissions (SERCs) really have the power to take tariff decisions independent of political influence, if they so want to?

SERCs are supposed to be independent. But, a lot also depends on how active consumer organisations are. A case will always be made out by the discoms (when they file a tariff petition with the SERC) on how justified their demand for a tariff hike is.

But, it has to be critically examined and the consumer organisations can question this.

Maharashtra, for instance, has very active and knowledgeable consumer organisations. But many States do not.

The tariff petition filed by the discom must undergo proper technical scrutiny. Consumer organisations can play an important role here. Under the law, every regulatory commission has to appoint designated consumer representatives for their respective States. But, training these consumer bodies is a big challenge.

So, the discoms have been asking for tariff hikes but the SERCs haven’t been approving them?

The discoms make inflated demands knowing that these will be slashed by the SERCs. It should not be like that, it must be based on certain objective principles. The SERCs are under political pressure to not propose tariff increase for certain categories of consumers, such as agriculture, public drinking water schemes. If the State government does not give upfront subsidy committed by it, the regulator should go ahead with the proposed higher tariff.

So, the SERCs work out the cost of power and the discoms are allowed to recover it either through tariff or subsidy?

Normally, the regulation should be such that the SERC should not have to go to the government to check on whether the latter wants to give subsidy or not.

The SERC should declare the tariff and then the government should decide what it wants to do (allow hiked tariffs or provide some subsidy in lieu of tariff hike). But, many States have regulations where the SERCs have to make a reference to the State government on this issue.

That gives the government an opportunity to pressurise the regulatory commission.

In the Tata Power and the Adani Power compensatory tariff case, the CERC and the Appellate Tribunal for Electricity (APTEL) came out with completely different orders. Doesn’t this undermine their credibility?

The regulators come out with speaking orders, that is they have to give the reason for their decision.

Now, in the Tata-Adani case, APTEL accepted the plea of ‘force majeure’, whereas CERC’s logic was that there is no force majeure but there is a case for ‘mutually agreed compensatory tariff”.

The argument given by APTEL is that nobody could have foreseen such upheaval in Indonesian coal prices (which affected the companies’ cost of power production).

But APTEL rejected CERC’s power to grant compensatory tariff. Now, whether the arguments given by CERC or APTEL are correct or not shall only be decided by the Supreme Court.

Actually, this should not reduce their credibility. Credibility gets reduced if your order is absurd. What is important is what logic has been used and whether that is plausible.

There is a common thread in both the judgements — you cannot run a power plant making monthly losses. The reasons on the basis of which you are compensated can be different.

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