Tariff Design 

7.1         The Madhya Pradesh Vidyut Sudhar Adhiniyam, 2000 prescribes the framework under which the Commission can determine the tariffs. The principles to be followed by the Commission as contained in the Section 26 (2) are reproduced below.  

(a)          that the tariff progressively reflect the cost of supply of electricity at an adequate and improving level of efficiency;

(b)         the factors which would encourage efficiency, economical use of the resources, good performance, optimum investments and other matters which the State Commission considers appropriate for the purpose of this Act;

(c)          the electricity generation, transmission, distribution and supply are conducted on commercial principles;

(d)         the interests of the consumers are safeguarded and at the same time, the consumers pay for the use of electricity in a reasonable manner;

(e)          the principles and their applications provided in Sections 46 and 57 of the Electricity (Supply) Act, 1948 (No. 54 of 1948) and the Sixth Schedule thereto; and

(f)           in the case of the Board the principles under section 59 of the Electricity (Supply) Act, 1948 are observed

7.2              Further, sub-section (3) of Section 26 provides that the tariff determined by the Commission

(a)          shall not show undue preference to any consumer of electricity, but may differentiate according to the consumer�s load factor, power factor, and total consumption of electricity during any specified period or the time at which supply is required or the geographical position of any area, the nature of supply and the purpose for which the supply is required or paying capacity of category of customers and need for cross subsidization.

(b)         Shall, except in the case of financially weak consumers who are to be provided limited quantum of electricity at reduced tariff for meeting the basic needs, be in a manner that the existing subsidy given to any class or classes of consumer by charging higher tariff from other classes of consumer is progressively reduced and within a period of five years from the commencement of this Act the tariff to any class of consumer shall reflect a minimum of seventy five per cent of the licensee�s average cost of supply of electricity to that class;

(c)          Shall be just and reasonable and be such as to promote efficiency in the supply and consumption of electricity; and

(d)         Shall satisfy all other relevant provisions of the Act, regulations and conditions of licence.

7.3              The Commission has followed the above-specified principles while designing tariff for all consumer categories. However, given the extent of distortion in the prevailing tariff structure, it has been possible for the Commission to move forward to a limited extent. This existing tariff structure has evolved over past several years due to socio-political considerations and contains multiple distortions. Tariff rationalization by way of corrections of distortion and rebalancing needs to be undertaken in a gradual manner over a reasonable period of time. The flaws in the current tariff design, the process of correction and the steps initiated in the current tariff order are discussed below.

Recovery of fixed and variable costs

7.4              During the course of public hearing, many consumers suggested that in case of no consumption of energy during a particular month, the Board should not raise any bill on them for that month.

7.5              The Commission is of the opinion that once a connection for supply is given by the Board, whether the consumer consumes electricity or not, the Board has to incur certain costs. These costs are incurred to install and maintain the infrastructure necessary for supply and are fixed in nature. For instance, the Board has to incur expenditure on creating generation capacity, laying transmission and distribution lines, building transmission and distribution substations as well as offering distribution services such as metering, billing, collection, administration and processing consumer requests and complaints. These expenses are incurred irrespective of actual consumption of energy.

7.6              The following table presents the allocation of ARR as determined by the Commission  into fixed and variable costs as well as the average fixed charges in Rs/KW and variable charges in paise/Kwh. 

                                                                                             Rs. in crores

7.7              While the proportion of fixed costs of the Board is approximately 64% of the total costs, many consumer categories do not even have the component of fixed charges. The current tariff order has attempted to correct this anamoly by introducing fixed charges for major consumer categories such as domestic, non domestic and HT irrigation.

7.8      Subsidy from State Government

The Board in its proposal has projected for subsidy in the form of adjustment against Electricity Duty amount to Rs.398.86 crore.

The Commission held a meeting with the officials of the State Govt. on the tariff petition of the Board.  The officials stated that they would be taking appropriate decisions regarding the quantum and nature of support to the state power utilities at an appropriate time.

After the meeting with State Chief Secretary and Principal Secretary (Finance Department), a formal reply has been filed by the Under Secretary in the Energy Department, who was authorized to file the sworn affidavit on behalf of the State Government, stating that �the views expressed are only recommendations of the State Government as to the tariffs and are not directions for grant of subsidy in terms of sub-section (4) of section 26 of the Madhya Pradesh Vidyut Sudhar Adhiniyam, 2000. It is the view of the Government that these rates are eminently appropriate for safeguarding the interests of both consumers and the utility. The decision on the grant of subsidy to any class or category of consumers and the extent thereof will be taken by the Government after the tariffs are determined by the Commission and the tariff rates are communicated to the State Government.�

7.8.1    The Commission has designed the tariff structure as per provisions of the Madhya Pradesh Vidyut Sudhar Adhiniyam 2000 so that except concessional tariff to weaker section, tariff of all other categories is brought atleast to the level of 75% of the cost of supply after 5 years w.e.f. the date of effect of the Adhiniyam i.e. 03.07.2001.  Keeping in view the ARR approved by the Commission, there is a huge gap to be met. The Commission has kept tariff of metered agricultural consumers at Rs.2.4 per unit and corresponding slab tariff have been computed by increasing the above metered rate by 10%.  The State Government had suggested that metered tariff for agriculture should be brought down to Rs.1.00 per unit and slab tariff structure corresponding to the metered rate as Rs.1.10 per unit. This will therefore have a huge implication on subsidy to be provided by Government of Madhya Pradesh.  On the basis of prevailing Agriculture tariff, subsidy to be provided to Madhya Pradesh State Electricity Board by the Government on the metered tariff of Rs.1.20/u and equivalent flat rate of Rs.1.32 per unit, comes to Rs.736 crore including a little shortfall in domestic category.  The State Government may decide the quantum of subsidy it is willing to provide to the Board to reduce the agricultural tariff.  Thus, in case the State Government gives a clear commitment to provide subsidy of Rs.736.00 crores, then only the agricultural tariff of Rs.2.40 per unit for metered category can be brought down to Rs.1.20 and corresponding flat tariff computed by increasing metered tariff by 10% to Rs.1.32 per unit.  Subsidy of Rs.736 crores in a year means Rs.184 crore in a quarter which should be passed on by the Government of Madhya Pradesh in advance on quarterly basis.

This above subsidy is worked out for tariff implication for whole year. It is however to be kept in mind that the increase in tariff allowed by this order will not provide the benefits to MPSEB for the full year 2002-03; indeed less than four months are remaining in the year 2002-03. The estimated revenue of Rs.636 crore considered for whole of the year will actually get the MPSEB only Rs.212 crore upto 31st March 2003 leaving a Gap of Rs.424 crore      (Rs.636 crore � Rs.212 crore = Rs.424 crore) in the financial year 2002-03. The Actual requirement of subsidy by MPSEB will, therefore, become Rs.736 crore + Rs.424 crore = Rs.1160 crore in the year 2002-03.  If subsidy from the Government does not materialise, even the existing rates of Rs.1.20 per unit for metered agricultural consumers shall not be realistic.

7.9        Net Revenue Gap

Considering the ARR given above and the estimated revenue at existing tariff for 2002-03, the Board shall be having a net revenue gap of Rs. 1372.62 crore, which is summarized below:

As is evident from the above, the net uncovered gap of Rs. 636.60 crore is to be met through tariff revision for 2002-03.

7.1.1        Further, the Commission has also introduced optional Maximum Demand (MD) based two part tariff to the consumers who feel that such a tariff structure would benefit them based on their pattern of consumption.

Tariff for similar consumers in rural areas

7.1.2        Another important aspect deserving attention while designing the tariff structure is the difference in the availability of energy to different group of consumers. During the course of public hearings many consumers made a forceful case for comparatively lower tariff for rural consumers. The Commission has observed that availability of energy to rural sector is generally less than that for urban areas. Hence tariff for consumers in rural areas should also be lesser than that applicable for consumers in urban areas. Accordingly, a separate tariff has been proposed for the consumers in rural areas for domestic and irrigation categories, which is lower than the tariff for the same categories in the urban areas. 

Tariff and Cost of Supply

7.2              An efficient tariff design links the tariff applicable to a consumer with the cost of supply and service. There is a substantial difference between the tariff for different consumer categories and the cost of supply as shown in Table below. HT consumers, including industries, railways and commercial complexes pay significantly higher than the cost of supply while the LT consumers, particularly domestic and agricultural, pay significantly lower. 

Average cost and tariff at Different Voltage Levels (kV) in paise per unit

7.3              The Commission has addressed this aspect by increasing the HT tariff only by a negligible 3%, while the LT tariffs have been increased by an average of 29% Thus it has been possible to reduce the amount of cross-subsidy existing under the current tariff. Further, within the LT category the tariff has been increased by a greater amount for Agriculture and domestic consumers for similar reasons.

Metered and Unmetered tariff

7.4              Consumers who are provided unmetered supply in domestic and irrigation categories consume irrespective of quantum of usage as they pay fixed charges per month which is different from the consumption by metered consumers who pay according to the quantum of consumption. It is a known fact that flat rate tariff leads to inefficient usage and inaccurate assessment of consumption and loss. In order to incentivise metering and switching over to metered connections, the tariff for metered connections has been kept lower than the corresponding tariff for unmetered consumers. This differential is currently kept at approximately 10% and depending on the actual experience, this would be revised further.

Tariff to incentives switching of LT irrigation consumers to HT category by forming a society

7.5              The tariff for HT Irrigation has been designed so as to incentivise the LT consumers to switch to HT connections. This is being done to (i) reduce T&D losses (ii) minimize administrative costs of serving these consumers and (iii) promote metering

Simplification of the tariff structure

7.6              The existing tariff structure was complex since it had multiple slabs especially in the domestic category. The current order has simplified the tariff by reducing the slabs. This would lead to ease of understanding and administration and is expected to reduce the incentive and temptation to indulge in malpractices. The number of slabs in domestic category have been reduced from 5 to 3. There exists a significant scope for further rationalization in the following years as and when information/data on consumption profile of consumers is available. 

Other aspects of tariff design

Group metering

7.7              As a measure of encouraging metering amongst SLP consumers who are currently unmetered, it is proposed to introduce a separate category under the heading �group metering� for a minimum of 10 persons opting for a metered connection. The tariff applicable to this category is 20 ps per unit lower than the individual metered connections under SLP category.

Separate tariff for higher number of hours of supply to irrigation

7.8              Some of the irrigation consumers have represented during the hearings that they would be willing to pay higher rates if they are provided supply for additional hours as compared to the existing supply duration of 6 hrs/day. The Commission is in favour of such an optional tariff plan preferred by the consumers and has fixed the following conditions for such consumers

�        80% of the consumers connected to a particular dedicated feeder to sign an agreement indicating willingness to pay the higher tariff

�        Increase in number of hours of supply from 36 hrs to 72 hrs/week

�        Applicable tariff would be 1.5 times existing tariff

�        Such consumers should not have any dues outstanding to the Board

�        Board shall make available the information on the feeders where supply hours are more than 36 hrs. 

Variable Cost Adjustment

7.9              The Commission has also examined the issue relating to fuel and variable cost and an Order has been passed separately. The Commission has not found any justification for keeping fuel component of cost separately since fuel is included in the generation cost in the computation of Annual Revenue Requirement. Besides, it is not possible to accept the figure of Rs. 76.59 paise per unit, which was being charged by the Board as there is no easy mechanism to go into the details. The components of the ARR have been examined in detail and only reasonable costs have been allowed. These costs, in turn, have been allocated to fixed charges and energy charges in the tariff for different consumer categories. Accordingly, the existing FCA charge need not be applicable from the date of application of the revised tariff order.

Presentation in the tariff order

7.10          The presentation of the revised tariffs has been simplified in this tariff order. All details pertaining to the tariff and associated charges have been presented together in the same section for a given category which provides ease of reference without the need to refer different sections as in case of earlier tariff schedule.