Plan to hike short-term open access charges: Short-circuiting industrial consumers

Hike in the levy may add to the increasing tendency among states to raise protectionist barriers against open access.

Written by Anil Sasi | New Delhi | Published:November 2, 2016 1:48 am
(Illustration: C R Sasikumar) At present, on an average, the inter-state Open Access charges (injection plus drawal) is around Rs 0.50/unit. (Illustration: C R Sasikumar)

A proposal that is under active consideration in the central power regulator to hike the short-term open access charges for buying electricity from the open market could add to the woes of industrial consumers.

Across states, industrial consumers are already saddled with high open access or OA charges, which effectively deter them from sourcing electricity from the cheapest source. Fixed overheads, especially prohibitively high electricity tariffs, are a big drain on the efficiency of Indian industry and any proposal that could add on to these costs further could compound the lack of competitiveness of Indian industry at a time when the domestic industry is struggling to fend off competition from cheaper imports, especially from China.

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The proposal being considered in the Central Electricity Regulatory Commission (CERC) to hike the short–term open access (STOA) charges to levels higher than the long-term open access (LTOA) charges has been prompted by a plan sent to the regulator by state-owned transmission major Power Grid Corporation of India (PGCIL), officials involved in the exercise said. The hike in the levy could be in addition to the increasing tendency among states to raise protectionist barriers against open access — a key reform measure ushered in by the Electricity Act, 2003, that effectively enabled consumers to migrate to electricity suppliers of their choice as a means of infusing competition in the power sector and bringing in efficiency in the distribution sector.

At present, on an average, the inter-state Open Access charges (injection plus drawal) is around Rs 0.50/unit. If the CERC proposal, which is currently being discussed and may effectively double the STOA charges to around Rs 1/unit (injection plus drawal), will reduce the viability for open access, thereby defeating the spirit of the Electricity Act, 2003 which was aimed at promoting open access and competition.

Among states where open access is allowed, including Punjab, Rajasthan, Haryana, Andhra Pradesh, Telangana, Gujarat, Karnataka and Madhya Pradesh, industrial units that qualify (those with a load of over 1 MW) have managed to record savings on power purchase cost by procuring power through the short term market in a bid to shore up their bottom line. Though the provision of Open Access is not fully implemented in the true spirit by most states, even with the limited and partial implementation of the reform measure, industrial units — especially small and medium ones — have been able to procure reliable power with adequate flexibility at relatively competitive prices from electricity distribution utilities other than those operating in their own states.

Incidentally, in states where consumers are permitted to opt for Open Access, the discoms are also safeguarded and compensated with cross subsidy surcharge (CSS), additional surcharge and wheeling charge. In the past, a number of states have resorted to hikes in CSS, making Open Access prohibitively expensive. According to industry estimates, across most states, industries stand to save by purchase of power from market only if the market price is in the range of Rs 2.5/unit- Rs 3/unit. As a result of all these prohibitive measures across a number of states, the number of potential short-term access consumers far outnumber the active open access consumers.

While the new proposal is focussed on sharply hiking the STOA charges, interestingly the transmission system is designed on the basis of LTOA users, who get preference in transmission capacity allocation. STOA is only allocated transmission capacity if at all there is surplus capacity available in the system after utilisation by long-term open access users. “The STOA charges should actually reflect the existing scenario and treatment of STOA in the current system. It means that STOA charges should be in fact lower than the LTOA charges as it is practiced worldwide. Currently STOA charges are at par with LTOA and increasing it further will actually be against the spirit of EA, 2003,” an executive with a company utilising the short-term window to source cheaper power from the spot market, said.

Maharashtra Electricity Regulatory Commission’s former member Jayant Deo admitted that some states were effectively hindering Open Access and some were applying prohibitive charges and conditions. “The lack of intended competition in power sector in India is on account of missing definition of Retail sale. The (Electricity) Act provides in Section 62 (1) (d) to determine the tariff for retail sale of electricity and recognises that electricity market will have wholesale, bulk and retail sale in Section 86 (1) (a). There is a proviso to this section which says that the SERCs (State electricity regulatory commissions) will only determine wheeling charges and surcharge thereon, if any, for categories of consumers who have been permitted Open Access under Section 42… The competitive markets as required to be developed under Section 66 of the Act, cannot be developed so long there is regulated tariff. Hence insertion of this definition (of retail consumers) will pave the way for market development and competition — the soul of the Electricity Act, 2003,” he added.

User industries across states have already started vocally protesting attempts to thwart the open access provision. In Tamil Nadu, for instance, Open Access power consumers have approached the Tamil Nadu Electricity Regulatory Commission last month seeking relief from the high cross-subsidy surcharge levied by the utility. While the latest National Tariff Policy notified in January 2016 allows discoms to levy CSS on all segments of open access consumers subject to a ceiling of 20 per cent of the electricity tariff set for that segment, the CSS levied by the Tamil Nadu Generation and Distribution Corporation (Tangedco) is not capped at the ceiling prescribed in new Tariff Policy,2016. Open access consumers, the large power users, are shelling out double or more as CSS.

The Open Access Users Association, a registered, national body representing the open access consumers had petitioned the Commission, which issued notice to Tangedco in September. CSS compensates the public sector utility for the loss of revenue and also provides for the use of the transmission and distribution infrastructure. But it cannot constrain open access. The latest policy caps CSS to 20 per cent of tariff on various segments.

But the CSS now ranges from Rs 2.36 to Rs 3.50 a kWh based on the older policy which does not set a ceiling on CSS. The petition urged the Regulator to re-determine the CSS in line with the new policy. In 2014, the Haryana electricity regulator had effectively stayed a move by the state government to deny short-term open access to industrial consumers in the state. The stand taken by the regulator was seen as significant in the wake of an increasing tendency among states to raise protectionist barriers against open access. There had been similar moves last year by other states such as Gujarat to disallow electricity transactions under open access for industrial consumers, a move that industry chamber CII said could “negatively impact operations” industrial consumers.

All this comes at a time when there are increasing question marks over the competitiveness of the Indian manufacturing sector. According to data from the Department of Commerce, Chinese imports accounted for over 15 per cent of India’s total import basket in 2015-16. While China is India’s biggest source last fiscal, the amount spent on buying the Chinese goods was higher than the combined amount India spent on importing goods from its other big trading partners, including the United States, Saudi Arabia and the UAE last financial year.