By Phrangsngi Pyrtuh
Antilla the residential building belonging to Mukesh Ambani in Mumbai city has a monthly electricity bill of Rs 70 lakh rupees an RTI report revealed. On the other hand Meghalaya as well as political parties (and maverick politicians) are exploring ways and means to pay the electricity bills which have shot up drastically during the winter season and the noise is getting shriller. There was much fanfare and high hopes when MeSEB was corporatised in 2010 but the prevailing situation indicates that the ambitious objective of reclaiming the power surplus state tag would take a long while to materialize.
MeSEB was reorganized as a Corporation through the “Meghalaya Power Sector Reform Transfer Scheme 2010′ by transferring assets, properties, etc to MeECL as the holding company with three subsidiary branches with the MePDL the distribution branch, MePGCL as the generation branch and the MePTCL as the transmission utility. Since the branches are not commercially independent all business transactions such as determination of tariff or approval of Fuel and Power Purchase Price Adjustment (FPPPA) etc require clearance from Meghalaya State Electricity Regulatory Commission (MSERC). Recently there were conflicting reports of a proposed 500% hike for certain categories by the MePDCL. This the Chief Minister later clarified was not true. Rather the proposal was for an 89% hike which is still unreasonable to tide over the Rs. 600 crore cost of power for 2014-15 which includes transmission cost and maintenance charges. The corporation already owes Rs 470 crore to power companies. It must not only clear the outstanding bills but also find ways to pay for the cost of power that it would require for the next one year.
The Electricity Act 2003 stipulates recovery of additional burden on account of variation in power purchase and fuel price to the State Regulatory Commission. The Meghalaya State Electricity Regulatory Commission (MSERC) have approved the Fuel and Power Purchase Price Adjustment (FPPPA) for such recovery from consumers.
Can the regulatory body therefore scrapd the FPPPA as demanded by one of the Dorbar Shnong? The FPPPA is a formula outlined by the regulatory commission and is determined on a cost plus principle which operates on a mark-up percentage to not only maximize the rate of return but is used to justify a price increase for any increase in costs by allowing a mid course correction due to uncontrollable costs. Notably history on regulation testifies that cost plus tariff in generation does not normally result in reduction in tariff. The FPPPA would continue unless a suitable alternative is provided to leverage the losses of the corporation.
What are the factors that caused the FPPPA to rise to an extent that the MeECL contemplated a 500% increase which was vaguely dismissed by the Chief Minister? There is huge gap between power demand and supply which is responsible for the power cuts and load shedding we are now accustomed to. To tide over the problem the MeECL depends heavily on the market dominated by the central power utilities such as NEEPCO, NTPC and NHPC. The more the cost of power the heavier the pressure on MeECL. The cost of power generated from these central utilities is increasing on account of higher fuel costs and raw materials which increased the price of electricity sold. For instance most of the NTPC installed capacity is fired by coal and gas. Domestic coal production has slumped which necessitates increasing coal imports in recent times. International coal price volatility makes the Indian power sector extremely vulnerable. Price of coal and oil are increasing by the day and unless this is curbed, power producing companies would continue to sell power at a higher price with direct bearing on the FPPPA. Last year the Government allowed power companies to pass on the cost of imported coal to consumers.
The MSERC may stipulate the MeECL to recover variation in fuel/power purchase and costs from consumers as per the formula. Of all the cost components, fuel and power purchase costs from central power utilities such as NEEPCO, NTPC and NHPC comprises the largest and is non controllable. The fuel and power purchase costs is usually passed on consumers to enable the MeECL to not only pay its power suppliers but also to continue to purchase power. The FPPPA formula once accepted and approved would be applicable to all specified tariff categories except for exempted categories such as BPL consumers.
Costs incurred by the electricity corporations are mostly uncontrollable – a factor that is taken into account under the Multi Year Tariff (MYT) framework of the EA 2003. The MYT regime modifies tariff every year taking into account the adjustment on account of allowed variations of the uncontrollable factors. Apart from the fuel and power purchase costs other potential cost are costs on account of inflation, taxes and cess and variation in power purchase per unit costs on account of hydro thermal mix in case of adverse natural events. The FPPPA directly impacts the cost of electricity supplied and each time an upward revision occurs there is an increase in the cost which is reflected in the electricity bills.
The MeECL is heavily dependent on power purchased from the market and incurring phenomenal debt. An amendment to the EA 2003 mandated that State Regulatory Commissions set targets for distribution companies to purchase certain percentage of total power generation from renewable energy (RE) sources such as solar, wind and such like energy sources. A column appearing in this paper mentioned the need to develop and accelerate other alternative power sources such as solar and wind energy as they require less amount of non-renewable fuels such as coal and oil for production. However further technological breakthrough and pressure of competition is required to make RE affordable in India.
The Central Electricity Regulatory Commission has drafted fresh regulations to decide the multi year power tariffs for 2014-19 for power generating companies which promises cheaper power tariff. The document is awaiting final clearance after soliciting industry feedback. We can only hope the new regulation takes into account the problems faced by both power companies and consumers so that there is price stability as far as tariffs are concerned. Period.