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Prayas comments on APSPDCL and APEPDCL Petition for ARR, Tariff Determination for retail sale of electricity for FY 2018-19

Author(s): Prayas (Energy Group) Publication Date: February, 2018

Distribution Companies in Andhra Pradesh, APEPCL and APSPDCL have filed petitions before the APERC for determination of Aggregate Revenue Requirement and tariffs for the year 2018-19. APERC, conducted public hearings  across the state as part of the tariff determination process and PEG submitted some comments and suggestions during the public hearing in Hyderabad. The presentation made at the hearing is available below.

The submission has taken a medium term perspective on the DISCOM operation and finances in order to highlight the infeasibility of sustaining current trends. The DISCOMs in their petitions have not asked for any tariff increase for the year 2018-19. However, they are also projecting a revenue gap of almost Rs.8000 crores, some of which might be met by state government subsidies. PEG has also highlighted the likelihood of the projected revenue gap being higher than that estimated by the DISCOMs which could also increase the burden of carrying cost. In its submission PEG has noted that there is possibility of underestimation of certain cost components and overestimation of some revenue heads.

Using Revenue and Tariff Analysis for Electric Utilities or RATE model, PEG has projected order of magnitude impacts for 2021-22 based on current trends. Even with current trends, costs increase significantly for the DISCOM and the increase is much more if 50% of the HT sales moves to open access or captive options or if 10 GW of RE capacity is added by 2022. Assuming a modest annual tariff increase of 1.7%, the cumulative revenue gap along with carrying cost for the two DISCOMs is estimated to be in the range of Rs.22,000 crores to Rs. 38,000 crores by 2021-22. In order to meet increasing costs, the tariffs need to increase at the rate of 10% to 19% per year. Alternatively, subsidies need to increase to meet the annual revenue gap such that the annual subsidy payment by 2021-22 is Rs.8,900 crores to Rs.13,600 crores.

The model results indicate that the current model is not sustainable for the state government or the power sector, and may lead to serious political and/or governance issues. Given the increasing cost competitiveness of alternate supply options, more and more cross subsiding consumers will migrate to open access, captive and rooftop solar options. At the same time, the average cost of supply for DISCOMs continues to increase.

The commission needs to take a comprehensive view of the impact of these changes on the sector and determine a transition plan for the DISCOM business model which addresses issue of the reducing room for cross subsidies, increasing demand uncertainty and the need to move away from long term RTC contracts. It is hoped that the commission takes cognizance of these issues and uses the upcoming MYT process as an opportunity to initiate a consultative transition plan for the sector.

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