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Arvind Kejriwal’s 49 day government in Delhi may now be history, but the very real question of rising electricity prices faced by domestic and industrial consumers in India remains. In fact few politicians actually have a credible plan of lowering electricity tariffs beyond offering outright subsidies and as additionally in Kejriwal’s case, of threatening distribution companies (discoms) with comptroller and auditor general (CAG) audits. Truth be told there are deep structural issues plaguing the electricity sector in India that are difficult to address and any remedy will require both the political capital to balance competing interests as well as the will to facilitate steady investment in infrastructure.

Populism has seldom fixed problems related to the provision of public goods such as electricity. Indeed, one of the reasons why we see appreciably rising tariffs today is because they were deliberately held down in the past. Long have discoms in India been forced to subsidise domestic and agricultural consumers through a mix of overcharging (i.e cross subsidising) industrial customers and/or simply absorbing the losses from pricing below cost. Such schemes, unsustainable at the best of times have really come unstuck now because of rising fuel costs for generators in recent years.

Perhaps the greatest failure of the incumbent UPA regime has been its mishandling of the domestic coal sector as almost everybody now knows thanks to the soot generated by ‘coalgate’. Many Indian generators today are heavily dependent on costly imported coal, which can be up to twice as expensive as the notified price issued by Coal India (CIL) for domestic coal and this has served to increase the average cost of electricity generated by thermal units (the mainstay of domestic generation) by anywhere between 40-60 percent in the last three years accounting for calorific value differences. As a result ‘downstream’ players in the electricity sector i.e the discoms who have in place multi-year long term power purchase agreements (PPA) with these generators are now unable to find any further ‘direct’ or ‘cross’ subsidy ‘wriggle room’ given their power purchase costs. Past populism has left many of these discoms with huge debt burdens thereby leaving no slack for them to offset rising generation costs. Of course, discoms continue to overcharge their ‘cream’ bulk customers but now they are not in a position to keep subsidising domestic users to the extent they did in the past as the sheer size of the subsidy component is now too big to either shift to someone else or absorb it themselves. This is a key reason behind tariff hikes in a state like Delhi which is wholly dependent on central generating stations using a greater amount of imported coal than before which has led to average tariffs being raised by 26 percent in 2012 alone followed by another five percent hike in 2013.

Now many bulk consumers frustrated by high prices as well as the performance of discoms in terms of making power available have looked towards the ‘open access’ (OA) route for succor. OA introduced in the Electricity Act of 2003 (EA 2003) is a ‘Non-discriminatory provision for the use of transmission lines or distribution system or associated facilities with such lines or system by any licensee or consumer or a person engaged in generation in accordance with the regulations specified by the Appropriate Commission’. Basically it allows any consumer with a load of 1 MW and above to purchase power from the power exchanges or even directly from a producer with the power being wheeled through the existing grid network on a pre-agreed schedule at a competitively negotiated price.

Source-On Request