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Cross subsidy, regulatory asset charges make changeover consumer category uncompetitive

Tuesday, 17 June 2014 - 7:15am IST | Agency: dna

It is a sorry state of affairs for Indian consumers of electricity where regulators are not held responsible for their acts stalling competition and hence price discovery. In an exclusive interview, Ashok Sethi, executive director of Tata Power, speaks to OP Thomas of dna, about the practices in the industry that is clearly anti-competition.

You are being seen as an expensive service provider by many consumers who have changed over from Reliance Infrastructure (R-Infra) to TPC. Why?
Tata Power's tariff has been lower across all categories for almost a decade. That was one of the reasons why consumers across all categories changed over to Tata Power since 2009, when it was permitted. However, as of now, Tata Power tariff has been announced to be lower for residential category only and particularly for low end consumers with less than 300 units consumption. Further, changeover consumer category has become uncompetitive except for low end residential category due to charges like cross subsidy charges (CSS) and regulatory asset charges (RAC). Going forward, Tata Power is working towards alternatives for facilitating competitive tariffs across all categories.

What components have caused the spike in your bills for changeover customers even though your energy costs remain cheaper?
Ans: For changeover consumers, the bills have surged on account of increase in wheeling, changeover subsidy, changeover subsidy surcharge and levying of regulatory asset charges all of which are to be collected for and on behalf of R-Infra across all categories. These subjects, however, have been questioned by Tata Power at the Appellate Tribunal for Electricity.

The cross-subsidy charges, the difference for providing cheaper power to low end consumers of less than 300 units consumption till last fiscal (2014) is now extended to those consumer below 300 unit consumers from April 2014. Why?
The cross subsidy is certainly levied to subsidise low end consumers which has got defined due to general public debate process. The cross subsidy in Tata Power tariff for low end consumers has been fixed at a very big margin of the order of around Rs 4.50/ unit to effect mix change of consumers.
The consumer numbers in this category for Tata Power is growing substantially and is nearly 3.75 lakh over the total consumer base of over 5 lakh consumers for Tata Power. Also this means that large subsidy provided for residential low consuming category would be cross subsidised from other categories raising their tariff disproportionately. Now, the correction of this tariff can be accepted in the revision exercise of tariff that's schedule to take place in the next MYT (multi-year tariff) due in 2016.

So basically consumers can do nothing but wait for another two years? Why can't TPC file for a `lower tariff' when it is permitted legally during the annual performance review which happens every year? Why has TPC remained silent?
These issues are to be taken by consumers where this has to be argued and proved. We have put up the case before the Aptel (appellate tribunal). Consumers too can put their case for hearing before Aptel. Any change in MYT on has to go to higher authorities, in this case Aptel.

Aptel is in Delhi. How can a consumer from Mumbai city go to Delhi for this?
Aptel has a hearing every month in Mumbai. This is what I was given to understand. I am not sure whether this is in vogue.

What is RAC consumers see in your bill? Is this the money collected from consumers for the mismanagement of high cost power procured by service providers?
RAC is basically regulatory asset charge. The revenue due as recognised by regulator for past operations and not recovered during that year of operations is termed as regulatory charge. It is being recovered from changeover consumers for R-Infra and has been levied on low end consumers as well. This will continue to be recovered for 6 years as per tariff order and paid to R- Infra.

Who decides RAC, why and how?
At the end of the year, regulator carries out annual performance review and does prudence check of various expenses carried out by the distribution company and arrives at the revenue gap with the returns due to the company. Further, regulator decides the recovery in terms of years and amount.

We believe RAC was the cost of high power purchases a power supplier incurred for providing non-stop power supplies to its consumer...now extended to even those consumers who've moved over other supplier, in this case TPC. Is that true?
As the main component of the tariff is power purchase cost, the RAC by this very reason mainly includes past power purchase recovery cost. The year of moving out of consumer and hence prudence of if it is to be recovered from particular consumer has not been gone into. Thus, as of now it has been levied on common platform without giving credence to the fact that particular consumer would have not been either not responsible or less responsible for creation of this.

And the regulator, MERC, okayed R-Infra to charge consumers of Tata Power who changed over from R Infra... is that true too?
The RAC charge has been decided by regulator for changeover consumers based on account of annual performance review petition submitted by R-Infra.

Now what is correct, you charge RAC in your billing to refund the so-called RAC to R-Infra? Are you R-Infra's collecting agent?
It may not be right to say that Tata Power is collecting agent as it is not a mutual agreement between Tata Power and R-Infra. It will be more appropriate to say Tata Power is collecting licensee as both companies have license to operate in Mumbai and governed by tariff set by regulator based of licensee petition.

Despite TPC having got a Supreme Court order stating you have the license to supply in Mumbai, you are in no position to supplying power to just anybody?
SC while recognising the legitimacy of license of Tata Power had recognised that till 2008 Tata Power did not have universal service obligation. Hence SC had found the use of wires of R-Infra to supply power to anyone as a legitimate method as open access is provided for in the Act. However, due to 2012 order of regulator, Tata Power is expediting the backbone network to enable to supply to anyone as per SOPs. To put it on record Tata Power has never refused any one approaching for supply and endeavored to do so.

Then why is MERC putting obstacles in your way? Can it overrule Supreme Court under the garb of laying down a road map or 11 clusters for you?
As defined earlier, it will change the sales mix of Tata Power and provide benefit to large number of low end consumers. However, Tata Power also expects these restrictions to be removed at the earliest for a free completion through which consumers of Mumbai will benefit as in the past since 2009.

How will you get new consumers, when you are operating under several restrictions despite a Supreme Court order unfettering you?
We are operating under restrictions and that is not the right way to grow as business and hope regulator removes these restrictions at the earliest.

Your license expires in August 2014 and you have given a three-year MYT...don't you see another round of delaying tactics if your license don't get issued afresh?
We expect to get licensee and do not envisage any issue on this account as we fulfill all the requirements as per law.

Who can qualify for a change over and who for a switch over?
The person who has changed over on R-Infra wires in 11 clusters can exercise their choice of switch over. In 11 clusters consumers less than 300 units of consumption can also switchover directly.

What are the 11 clusters TPC keeps talking about whenever a direct consumer approaches your offices?
The 11 clusters have been defined by regulator as an area where more low-end consumers exist and Tata Power shall expedite its network laying in these 11 clusters and also changeover only low end consumers. Also the switch over from R Infra has been only permitted in these 11 clusters as of now. Since Tata Power is acquiring large number of low end consumers in these 11 clusters and expediting network, it is very natural the activity report of 11 clusters keep appearing frequently.

Could you please elaborate?
The regulator has put these restrictions to change the mix of consumers with Tata Power. Tata Power expects that these will be soon be removed to allow free competition.

TPC can supply directly to BEST consumers, but not for R Infra consumers. Your charge to change-over suburbanite consumers are riddled with wheeling charges which is almost equal to your power bill (if below 300 units), RAC, CSS , while the new BEST consumers who opt directly for your power supply will have lower billing than changeover consumers of yours...Why this dual billing by TPC?
As per latest SC order , Tata Power can supply directly to BEST consumers. There is no change over from Tata Power to BEST in BEST joint area, it's a switchover. R-Infra area has changeover consumers and tariff structure for direct and changeover as determined in tariff order and are different. Tata Power bills according to the tariff order accordingly.

Please explain what is this threshold of 1067 units all about?
This was old, where the threshold above which changeover process was not beneficial to the consumer. Now the present threshold has fallen to around 420 units.

This means those with consumption of 420 units and above will find you expensive due to additional burden of R-Infra's RAC, CSS and wheeling charges as the law does not permit TPC to lay down its own cable based on consumer demand.
Our tariffs have become higher.

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