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CAG's next task
-The Business Standard

Delhi's power tariff hike needs a thorough probe

Since the privatisation of power distribution in Delhi in 2002, the average domestic electricity tariff has seen a rise of 107 per cent. It was Rs 2.50 a unit in 2001-02 and – after last week’s increase of 24 per cent with effect from this month – has gone up to Rs 5.17 a unit. This latest hike comes after another steep increase, of 21 per cent, in September last year. Perhaps to ensure that the agitation against the privatisation of power distribution was not fuelled by steep hikes, the average domestic power rates saw only a modest rise in the first eight years of the change in ownership of Delhi’s distribution entities. But now that power rates have been raised steeply in two successive years, questions are bound to arise about the justifiability of doubling tariffs in a decade.

The distribution companies have argued that tariff increases were necessitated by a 280 per cent increase in their power purchase cost in the last 10 years — up from Rs 1.4 per unit in 2002 to Rs 5.3 per unit now. Since the cost of power purchase accounts for 80 per cent of the distribution companies’ total expenditure on providing power at the retail level, the state electricity regulator accepted their pleas for a steep tariff hike. Indeed, the regulator’s calculation shows that the total deficit for the three distribution companies up to March 2011 had ballooned to an unsustainably high level of close to Rs 6,500 crore, compared to about Rs 3,300 crore a year before. Understandably, the three power distribution companies are now happy with the recent tariff hike, as they hope to return to the black.

Power tariffs in Delhi are among the highest in the country. A recent study showed that Delhi’s power tariff last year was 45 per cent more than the mean value of tariffs prevailing in north Indian states. Whatever correlation there may have been in the past between higher tariff and lower power shortage has disappeared this year, as fluctuating power availability has resulted in long periods of power outage in several areas. Two other equally disconcerting questions have surfaced. One, has the regulator agreed to two steep hikes after taking into account the benefits the distribution companies must have reaped from the sharp reduction in the transmission and commercial losses, from over 50 per cent of their total power supplies to about 20 per cent now? Two, has the regulator examined the justifiability and validity of the claim of a 280 per cent rise in the power purchase cost incurred by the distribution companies? The regulator has only now asked the distribution companies to strictly control costs by adopting better load forecasting techniques, selling surplus power to bulk consumers in neighbouring states, shedding high-cost purchase power agreements in surplus situations and demanding a higher share of central power. If, indeed, the distribution companies appear to not have taken any of these sensible cost-reduction steps for so many years, why should the consumer be asked to pay a higher tariff to bring down their losses? Given the paucity of information on the manner in which the regulator has allowed the tariff hike, it is necessary that a thorough inquiry be instituted to examine afresh the legitimacy of the claims of higher cost necessitating the last two increases. The Comptroller and Auditor General (CAG) is ideally placed to undertake such a task.