Kerala State Electricity Board Limited on way to scrap subsidy

THIRUVANANTHAPURAM: The tariff hike, which has come into effect today, is the first big blow delivered to the socialist model of tariff determination. This time, in a twist to the normal tariff fixation policy, the Electricity Regulatory Commission has imposed hike on low-income groups and has generally spared consumers in the high-income bracket. In short, cross-subsidy, the mechanism by which the rich are made to bear the power charges of the poor, is on the way out.

Domestic consumers who utilize more than 50 percent of the total power generated contributed only 29 percent of the total tariff revenue, less than commercial and industrial consumers who consume only 22 and 12 percent of the total generation. With the latest tariff hike, the ERC has begun reworking this equation. While the tariffs of lower domestic consumption slabs were hiked, that of households consuming above 400 units was left untouched. Tariffs of high-end commercial and industrial consumers, which were already 120 percent of the average cost of supply, were also left undisturbed.

The ERC was only bowing to the law. The Electricity Act, 2003, had already mandated that the tariff should be fixed in such a way that it progressively reflects the cost of supply of electricity and also reduces cross subsidies. It has also been stipulated that the tariffs for different categories of consumers should be within plus or minus 20 percent of the average cost of supply. “Therefore, this time it has been decided to minimise or avoid tariff increase to the consumer categories for which the existing tariff is above 120 percent of the average cost of supply,” said the ERC chairman, Mr T M Manoharan.

The ERC, however, did not succumb to the demand that the tariffs of commercial and industrial units be reduced. Further, it has also been stipulated that the minimum tariff should be at least 50 percent of the average cost of supply. Mr Manoharan said that the ERC had taken a very lenient view only in the case of agricultural consumers and charitable institutions. “The cost coverage for domestic consumers is almost nearing 80 percent of the average cost of supply,” he said. Nonetheless, Mr Manoharan said that the rates were raised in such a manner that consumers were not subjected to a tariff shock.