Open access norms offer a small window for power reforms

The power ministry has suggested that all state electricity regulators could follow a uniform formula to compute the extra surcharge on open access consumers.  It also feels that direct subsidy is a better way to support the poorer categories of consumers than cross-subsidising tariff across the board.

The Centre has proposed that open access customers should be required to schedule power for at least 24 hours whenever they seek open access and the state electricity regulatory commissions should determine cross subsidy surcharge (CSS) based on the category-wise cost of supply. The proposed regulations, however, appear more ambiguous than the current open access regime.

Open access consumers pay states cross-subsidy charges to compensate for the power supply they did not use despite scheduling. In the past year, several states increased cross-subsidy charges in the range of 80-600 per cent for industries, loading them with high tariffs.

Open access allows large consumers to choose their power supplier apart from the distribution company in the host state. These consumers pay cross-subsidy charges and additional surcharges apart from regular charges to source power from other sources. The discoms use these charges to subsidise a category of consumers.

The government is attempting power reforms without amending the Electricity Act and this move is unlikely to have far-reaching effects. Aiming at opening up the distribution sector, the Centre expressed its intention to separate content and carriage – electricity sellers and infrastructure builders would be two separate entities. This was suggested to enhance demand and increase competition in the power retail market. The government would introduce multiple supply licensees in the content business based on market principles and continue carriage as a regulated business.

The first step in this direction is overhauling the open access system and give consumers the choice of multiple power sellers. To this end, the proposal lists a five-pronged approach. The first and foremost is to make power tariff reflective of the true cost incurred by a generator.

“The tariff design should progressively reflect actual break-up between fixed charges and variable charges according to the discoms’ prudent and efficient cost structure,” the proposal said.

Experts point out that this situation is prudent only when the discoms promise assured power supply. “The discoms have a fixed and variable charge breakup because they levy penalties on power generators when they do not supply the agreed amount of power. Similarly, if the consumer pays a high fixed cost then there needs to be an assurance of particular hours of power supply,” said an analyst.

The regulations urged the state electricity regulatory commissions (SERCs) to “determine cross-subsidy surcharge based on category-wise cost of supply, thus identifying real cross-subsidy”.

The proposed regulations also said, “The SERCs should introduce differential cross-subsidy surcharge for peak, normal and off peak hours based on the ToD tariff. Time-of-day sensitive pricing can also help address the issue of uneven scheduling by open access consumers.”

The move will be welcomed by industries, which are paying high tariffs, though day-ahead scheduling of power demand will remain a challenge. On the other hand, experts believe that for a seamless power market, CSS and similar surcharges should be removed.

However, CSS still remains the states’ prerogative and increasing revenue by charging more from industries is an easy way out for struggling discoms. The regulations fail to address this and have added more to the load on open access consumers. While the SERCs have been asked to devise proper formulas, the regulations have added more charges to the existing list.

Stakeholders have been given a fortnight to respond.

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel