The Union power ministry has suggested that direct subsidy is a better way to support the poorer categories of consumers than cross-subsidising tariff across the board.

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The state electricity regulatory commissions (SERCs) should design tariff linked to the cost of supply of each consumer category, it said.

The ministry 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, thus identifying real cross subsidy. Under open access, customers can choose the power suppliers.

The ministry, in a consultation paper on August 25, has stressed the need for tariff rationalisation by SERCs, to enable discoms to recover the fixed cost through fixed/demand charges and variable charges through energy charge.

Besides, the ministry has proposed that SERCs should ensure that distribution companies (discoms) develop the requisite capability and infrastructure to assess the costs incurred in the supply of power to each consumer category.

Further, the ministry has made a case for the introduction of differential cross subsidy surcharge by SERCs as per time of the day tariff for peak, normal and off-peak hours. The ministry has sought suggestions and objections from various stakeholders by September 8.

Former power secretary RV Shahi told DNA, "Open access in distribution had the objective of promoting competition at retail level and consumers of power would have a choice to opt for a supplier. Unfortunately, it could not move forward due to a very high incidence of cross subsidy surcharge and additional surcharge which recently was increased by most of the states to an unsustainable level. Therefore, there is a need to strike a good balance between the interest of discoms and providing competition at retail level.''

Maharashtra Electricity Regulatory Commission's former member Jayant Deo observed that retail tariffs would have been lower reducing CSS through providing direct subsidies. There should be no frequent switching as open access consumers would have a choice of entering into a contract with discom under Section 49 of the Electricity Act. He feared if power ministry's proposals are accepted it may kill the competition instead of its promotion.

The ministry has highlighted issues faced by open access consumers, power sellers, distribution licensees and non-open access retail supply consumers of distribution licensees. The problems are relating to inability of discoms to manage power procurement efficiently due to the high frequency of shifting of open access consumers, insufficient to recover the entire loss of cross subsidy on account of consumers procuring power through the open access route, inappropriate calculation of additional surcharge leading to under recovery of power procurement expenses incurred by discoms and the mismatch between their actual fixed and variable cost liability.