Himachal Electricity Regulatory Commission Announces New Traiffs

1.         The Himachal Pradesh Electricity Regulatory Commission today announced its order on the multi-year tariff petition filed by the Himachal Pradesh State Electricity Board in terms of the first review order for the period 2009-10.  This is the second review order issued by the Commission in terms of the three year MYT period 2008-11.

2.         In the year 2006 the Commission was able to reduce the tariffs for consumers of all categories as  a first attempt  to pass on productivity  efficiencies obtained in the system to the consumers. This year again the Commission is pleased to reduce  tariffs considerably in the light of  greater efficiency brought  about  by means of  devolution of  Utility’s surpluses outside the  State system, and the greater amount off take by  industry  from the  State  System.  The Commission has, therefore, announced a 20 paise/unit reduction in the cost of power to domestic consumers across the State, which is about 22% of the basal tariff. .

3.         The Commission has watched with a degree of dismay the impact of  recession, the economic downturn   and degrades in capital formation  in the  national system, as well as  for  industry in the State.  As a major measure to help industry the Commission has decided to assist  Small and Medium industry  by reducing  its demand  charges for such industry  by Rs.50/kva taking into account a long standing  request  by  this  segment, specially as there is a need to offset  the adverse impact of working only in  one shift. This will mean a 15 paisa per unit reduction in tariffs for this segment. Simultaneously the Commission has, for large industry, reduced energy charges by 15 pase/unit so as to circumvent this recessionery phase in the life cycle of industry in the State. The above reduction should  go a long  way in  improving the bottom line of Industry in a State which has locational disadvantage. The reduction is about 7% of the basal tariff.

4.         While two reductions have now taken place in the last three years the Commission cannot but indicate its concern on the very slow pace of Power Reforms in the State.  While Regulatory Reform in Himachal Pradesh in the Power Sector has slowly moved, from the interventionist phase of a cost plus system (wherein informational asymmetry was prevalent and the tendency to overcapitalise present) to a phase of multiyear frameworks wherein incentive compatible regulation is used to improve operational efficiency though the pursuit of lower costs, attainment of more efficient pricing and maintenance of appropriate levels of service quality, other reforms have not surfaced

5.         However, other reforms within the power sector which were to be structured by  the Government,  have been slow in coming.  While the rest of the country has carried out reforms  in terms of  the 2003 Act, Himachal Pradesh still remains a back-water and one of the  few States  which have not been able to implement the  major thrust of a National Act passed by  Parliament in 2003.  Other States have taken advantage of reforms and have prospered meanwhile.  In fact, the Commission has made a conservative calculation that in case the State had started reforming like Gujrat, Andhra Pradesh and Haryana, right from 2003, large scale benefits in terms of tariff could have been passed on to the consumers.  However, the Commission would like to compliment the present Government for having   initiated the process, although again there is   unnecessary distortion and confusion in the Power Deptts’s inability to finalise an efficacious and proactive model based on successful model in the above mentioned States.

6.   The Commission has initiated the process of ensuring that a larger amount of power is saved by means of comprehensive approaches towards Demand Side Management in addition to the CFL scheme already launched.  The Commission is in the process of developing a design on an Action plan for reducing energy losses in Building Structures, incentivising  provisioning of  efficient  electrical machinery and introducing  more modern  technology in the  transmission sector. The benefits of DSM approaches are likely to flow to the sector over the next half-decade or so.

7.         The overall Revenue requirement of the Board has been assessed at Rs.2341 crores whereas the revenue from sale of power has been assessed at Rs.2483.59 crores.  The surplus is of  Rs. 142.65 crores.  This surplus would be utilized by the Commission to offset the impending revision in tariffs of Central Sector Generating stations, the likely impact of the implementation of the Pay Commission recommendations and the variations in the projections made in the tariff order, etc.

8.         The Commission has revised the Aggregate Revenue Requirement of the Generation, Transmission and Distribution functions of the Board for each year of the Control Period (FY09 – FY11) and has also approved the Retail Supply Tariffs for FY 2009-10.

9.         The Commission has approved an ARR for 2009-10 of Rs. 2340.94 Crs as against the Board’s projected ARR for 2009-10 of Rs. 2853.20 crores, as detailed in table below

10.       The increase in power purchase costs is the major factor leading to the increase in the ARR and this is primarily due to the increase in demand within the state. Simultaneously, there has been a sharp reduction in the revenues from the sale of surplus power outside the state, which this year has been projected as Rs. 266 Crs. Further, the ARR for the all the three years of the MYT control period has been revised taking into account the actual figures of 2007-08 based on truing up petition filed by the Board and the consequential true-up order issued by the Commission on 11-8-2009.

11.       In view of the introduction of the MYT regime, the Commission has made a concerted attempt to co-relate the tariff on a cost to serve model. For the domestic and agriculture sectors, recoveries are still under played owing to tariff shock constraints. Industry of course, still continues as a subsidizing category albeit at much lower levels. Rest of the categories are sought to be brought under the fold of a structure which is based on equitable tariff determination.

12.  For the domestic sector, a tariff decrease has been enunciated. The tariff for all domestic consumers consuming power up to 150 units per month has been reduced by 20 p. The net impact of this reduction is estimated to be Rs. 11.39 Crs.  The Commission understands that the State Govt. has already provisioned for a subsidy quantum of Rs. 140 Crs in the current year’s budget, The State Govt. has been subsidizing the domestic and agriculture categories. The effective tariffs, taking into consideration the above subsidy amount, for the domestic consumers shall be as shown in table below.

• Effective slab wise per unit rate taking into account the GoHP subsidy

13.   In case of the large industry, which continues to subsidize other consumers and is presently going through a period of recession, a reduction in energy charges of 15 paise per KVAh, has been approved both for EHT and HT consumers. Simultaneously, for the small and medium industry, a reduction in demand charges by Rs. 50/- Per KVA has been approved, keeping in mind the long standing demand of this segment to offset the adverse impact of having work for only one shift, in the present recessionary circumstances. The net impact of this reduction is estimated to be Rs. 47.43 Crs.

14.  The tariffs for all the other categories i.e. NDNCS, Commercial, street lighting, bulk supply etc remains unchanged.

15.  The total implication of the tariff reduction is estimated to be  Rs. 58.82 Crs. The approved tariffs shall come into force w.e.f. 1-9-2009. The retail and wheeling tariff, shall unless amended or revoked, continue to be in force upto March 31, 2010.

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