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Prayas comments on MSEDCL Petition for Multi Year Tariff (MYT) for FY 2013-14 to FY 2015-16

Author(s): Prayas (Energy Group) Publication Date: April, 2015

The Maharashtra State Electricity Distribution Company Limited (MSEDCL) has filed a Petition for Multi Year Tariff for FY 2013-14 to 2015-16. The MYT regulations 2011 mandated the regulated utilities to file business plans for a five year control period with detail forecast regarding sales, power purchase, capital expenditure and operational costs. If implemented properly, this would have helped to identify certain important areas of concern as well as improvement. However, the present petition, being filed in the last year of the control period, relies on actual performance data and new projections based on the same and thus has no relevance with the Business plan that has been approved.

The submission highlights serious inconsistencies and discrepancies pertaining to projections and assumptions relating to various cost elements, which should have been captured at the time of technical validation session and such erroneous petition should not have been admitted by the Commission. Thus, the petition which has been considered for the public process is full of ambiguous assumptions and inaccurate projections making it impossible to meaningful evaluate the licensee’s claims. There are also serious inconsistencies in the estimates for both generation and costs assumed by MSEDCL regarding Mahagenco’s performance. The commission will have to deal with these inconsistencies as it affects the finances and performance of both MSEDCL and Mahagenco.

With the failure to implement MYT in a manner that would have improved efficiency, the state will have to face a massive tariff increase in near future. Migration of cross-subsidising consumers, inefficiencies of MSPGCL, revision of competitively discovered tariffs and the rising distribution cost will all lead to a sharp increase in the MSEDCL’s revenue requirement. Except for agriculture and small domestic consumers, the tariff of the rest is already very high and hence there is very little room for expanding cross-subsidy. This is certainly not a sustainable model for the state government or the power sector, and may lead to serious political and/or governance issues.

As the tariff continues to increase, the big consumers will try to avail alternative lower cost solutions. Since the solar cycle matches most of the commercial demand, this may turn out to be a lucrative option for these consumers and is also perhaps desirable from a environmental and social point of view. While this will help the big consumers, loss of such high paying consumers will further cripple the MSEDCL’s finances and the burden of the regulatory asset as well as inefficiency of the utility will have to be borne the small and agricultural consumers. These consumers often do not have the necessary political influence or the wherewithal to challenge the regulatory decisions that are not considerate of their interest, thereby leaving them at the mercy of the state policy and the regulatory commission.

Given the scale of the problem, the relevance of the present MYT exercise becomes even starker. As the MYT process was to hold the utility accountable for performance, assist in medium term planning and provide certainty in tariff increase, one can conclude that the implementation of the 2nd MYT exercise is a missed opportunity, which could have prevented the escalation of the crisis. However, the commission and the utility must start taking actions that will arrest this downward spiral. In this context, the MERC should consider this tariff process as a first step towards the larger changes needed to be brought in to address many of the issues highlighted above.

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