New power tariff norms finalised

Open access is a feature introduced in the Electricity Act that allows consumers to choose their own source of power supply.

But if consumers move away from an SEB/distributor, this entails a loss in revenue. It is because of this that consumers are required to pay compensation.

The new formula of linking surcharge to the top five percentile of purchase costs has been worked out by an empowered group of ministers chaired by Finance Minister P Chidambaram after the Cabinet Committee on Economic Affairs referred the matter to them late last year.

Here’s how the new formula works. Assume a consumer in Delhi who currently buys power from a distribution company and pays Rs 4 per unit wants to choose his own source of supply.

The new formula says the loss in revenue caused by this consumer moving away should be reflected in the reduction in purchase costs. Added to this, the reduction should not be on an average purchase cost basis (which the Finance Ministry and Planning Commission had suggested) but should be in the form of the most expensive power that the distributor buys (top five per cent).

Now again assume that the average cost of buying power is Rs 3 and the top five per cent purchase cost works out to Rs 3.50 per unit. According to the formula cleared by the GoM, the actual compensation the consumer needs to pay works out approximately to 50 paise (the tariff he currently pays minus the average cost of the top five per cent).

The actual formula the Power Ministry is in the process of notifying has other factors as well such as wheeling and voltage charges. It also specifies that the top five per cent purchase costs would not take into account the cost of liquid fuel-based power stations.

The formula also shows that this compensation could very easily be negative if the tariff of a particular segment of consumers that wants their own source of supply is much lower than the top five per cent purchase costs.

In the above example, if the tariff is Rs 3 the surcharge works out to – 50 paise — in other words, the distributor would have to compensate the consumer for exercising his choice.