Download What is Cross Subsidy? - Maharashtra Electricity Regulatory

Mumbai Power Mess:
The Greatest Ever Mockery of Public Interest.
By Mohit Jadhav, Advocate, High Court
Preamble of Electricity Act 2003
An Act to consolidate the laws relating to generation, transmission, distribution, trading and
use of electricity and generally for taking measures conducive to development of electricity
industry, promoting competition therein, protecting interest of consumers and supply of
electricity to all areas, rationalisation of electricity tariff, ensuring transparent policies
regarding subsidies, promotion of efficient and environmentally benign policies,
constitution of Central Electricity Authority, Regulatory Commissions and establishment of
Appellate Tribunal and for matters connected therewith or incidental thereto.
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How to paint Competition?
MERC claims to be the only regulator to
introduce competition in Mumbai.
Function of MERC is also to protect
Consumer’s Interest ….
Are they?
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Mumbai – Power Suppliers.
• BEST:
Supplies electricity to Mumbai island
• Reliance Energy: Supplies electricity to Mumbai Suburban
consumers
• Tata Power Company: has license to supply electricity to both Mumbai
island and suburbs
• MSEDCL:
supplies electricity to Mulund and Bhandup
• It is evident from above that only Tata Power can compete with BEST and Reliance
• This situation is undesirable for following reasons:
Tata Power’s tariffs are at 50% discount to its competition hence competition is
only tariff based
Tata Power can choose to refuse the cross-subsidized categories of consumers as
they already are with their competitors
 Tata Power is in generation as well in distribution. Hence it will try to allocate
more power to its own distribution arm which is competing with other suppliers
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Only Tariff Based Competition
Consumer
Category
Energy Charge (Rs./unit)
Reliance
TPC
BEST
LT – Residential
0-100
101-300
301-500
Above 500
1.72
4.02
7.02
8.27
1.30
2.70
4.20
4.90
1.80
3.70
5.90
7.90
LT- Commercial
6.52
3.85
5.10
LT-Industrial
6.32
4.10
4.30
HT – Housing
4.02
3.80
4.37
HT – Industry
6.32
4.10
6.42
HT- Commercial
8.77
4.35
6.90
Is there a competition when one supplier is 50% cheaper than the
competitor ?
Should MERC encourage competition only for the sake of it?
Is the time ripe for competition?
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Consumer Migration
Then Who is changing their power supplier and Why?
Statistics reveals:
38% of total High Tension Commercial consumers opt to shift.
25% for High Tension Industries opt to shift.
30% of total Low Tension Commercial consumers opt to shift.
Reasons
A carrot of cheapest tariffs for commercial and industrial consumers coupled
with Tata Power’s Marketing & Sales efforts to get them on priority basis.
What about and for, You
& I, In This Beautiful Mumbai.
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Changing supplier.
Obviously consumers from industrial & commercial side
or those having high usage in domestic side would
prefer changing their power supplier to obtain benefits of
heavy tariff difference.
Tata Power targets such consumers on top priority, as
the Airport Authority seen changing its supplier on very
first day.
Why not others, who are the real beneficiaries and
burdened with heavy power tariffs for years together. But
unfortunately Tata Power made all efforts to stop
Common Man / Residential Consumers to migrate …
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How? Let us see.
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Consumer Rejection
Tata Power way of rejecting Unwanted Consumers:
No infrastructure created in last two years despite favouring SC Order in 2008….. Why? Where are
Customer Care Centres, Bill Payment Facilities, Complaints Centres to lodge power supply
interruption complaints? What compliance Commission has taken?
No proper dissemination of information on the existence; rather, the existing information was
removed….. Why? Is it not the violation of MERC Order dtd 15th June 2009? What is MERC’s take on
this?
All payments accepted via cheque only. How many consumers from slum areas who earn their bread and
butter on daily basis maintain bank account? Is the company, who is a well known CSR master, unaware
with this fact? Or a sheer avoidance.
Low consumption consumers discouraged by TPC officials on the grounds of Tata’s high FAC etc
Common consumes with less usage of power have to undergo a Metal Detector Test, i.e., getting power
connection is subject to stringent checks and multiple visits.
Min Security Deposit of Rs 1000/ - which was later on waived. This was under which rule or regulation or
law? And was this with Commissions’ go ahead since Commission has not initiated any action against
several complaints made to them?
Signing of agreement for min 5 yrs which was later waived. Was this not an attempt to create another
monopoly? Was this not an attempt to deny consumers their legitimate right to choose their power
suppliers?
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Tata: Reliance did not sign
PPA
Reliance: Tatas backed out
after committing to meet
their load till 2014
Who is telling the truth?
Should consumer suffer because of the corporate fight?
Is Tatas abusing their dominant position as a generator by killing the competitor?
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Who is dominating the situation?
You only judge …….
MERC thought of ending monopoly of BSES/Reliance for several yrs on distribution side
only …..
But, simultaneously, it gave birth to another Monopoly of Tata Power in Generation. ….
How? Just see below:
Objection was raised for existing Dahanu Power Station. Thanks to the GoM; it didn’t
work.
But strategically, proposed power project of 495 MW at Palghar; 495 MW at Saphale; 360
MW at Deonar were objected in all Forums with a Commitment of Supplying and
managing growing demand of entire Mumbai upto 2014.
Despite the known facts of growing demand for power seen due to the heavy population
inflows, real estate developments, etc. every year and against the self commitment, Tata
Power added merely 250 MW in last 15 years; and now it is proved that even that power is
going out Mumbai and pockets of Share holders of Tata Power are being filled instead of
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benefiting Mumbai consumers.
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Abusing its dominant position
Section 60:
The Appropriate Commission may such issue directions as it considers
appropriate to a licensee or a generating company if such licensee or generating company enters into any
agreement or abuses its dominant position or enters into a combination which is likely to cause or causes an
adverse effect on competition in electricity industry
Tata signing 100 MW PPA with BEST in Nov 2009 and refusing to sign PPA with Reliance
in May 2009. Is its abuse of its freedom as a generator?
Tatas unilateral allocation of its capacity to its own distribution arm and BEST impacts the
tariffs of Reliance inturn its ability to compete
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Subsidy Power Play
Who is Cross Subsidized today in Mumbai?
The Selected High End Commercial/ Industrial
Consumers of Tata Power
Or
Mass based Residential Consumers of Reliance
Energy….. Let us Understand in Details
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Subsidy
What is Cross Subsidy?
Residential Consumers are cross subsidized by Commercial /
Industrial Consumers
Reliance serves ~22 lakh residential consumers consuming
below 300 units per month i.e. ~ 75% of total Reliance
consumers and these consumers are subsidized by high end
commercial and industrial consumers.
Because of the saliently unique mixed categories of consumers,
burden of Cross Subsidy in suburban Mumbai is at the peak and
has almost crossed a figure of Rs.1000 Crs.
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Subsidy
Why is Cross Subsidy an issue now?
Cross Subsidy depends on Consumer Mix as Tariffs are based on Consumer Type
Shift in Consumer Mix increases or decreases Cross Subsidy based on which way the
consumer mix is tilting
Parallel License in Mumbai came into effect the day Tata started retailing
85% of Tariff is Cost of Power. Cost of Power is Controlled by Tata being a Monopolistic
Dominant Generator for Mumbai
MERC has to intervene in the matter of loss of Cross Subsidy due to Migration. Cross
subsidy charge is one answer
Regulated (cheaper) electricity is being diverted to luxurious use by consumers with
paying capacity at the cost of poor consumers who use electricity for their bare
essentials
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Result: Chaotic Mess of
Migrating Cross Subsidy
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In this messy situation ….What we can
hope, is nothing but the only
Dark Future….
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Role of MERC
1) Don’t encourage competition just for the heck of it
2) In case competition is to stay here please make
mechanisms which will ensure there is no predatory
competition.
3) Protection of consumer interest should be also given the
same amount of importance as compeition
4) Mechanism to compensate for Loss of Cross subsidy is
MERC Responsibility to ensure Residential Consumers
with lower paying capacity are not adversely affected
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