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The First Tariff Revision of MSEB: December-1999 to October-2000

Author(s): Prayas (Energy Group) Publication Date: October, 2000

In 1999, immediately after the Maharashtra Electricity Regulatory Commission (MERC) was formed, MSEB approached MERC with a tariff revision application. The tariff application was made available at all offices of the executive engineers of MSEB. Public notice was issued.

(Case 2 of 1999), 21st December 1999. Analysis of MSEB tariff application showed that in the absence of adequate justifications and data, the reasonableness of the costs claimed by MSEB cannot be evaluated. This petition by Prayas argues that (1) MSEB's costs to the tune of Rs. 1900 crores (1crore = 10 million) remain unjustified, (2) MSEB has understated its revenue to the tune of Rs. 210 crores, and (3) it is possible to raise additional revenue of Rs.500 crores through reduction in commercial losses. Considering these facts, the submission argues that MERC should direct MSEB to resubmit the tariff revision proposal. This proposal should be free from inconsistencies and discrepancies and should contain adequate data, proper and full justifications of costs, details of efforts made in order to increase operational efficiency; potential of various possibilities of revenue increase without increasing tariff, and details of efforts made to utilize this potential.

(Case 1 of 1999) 22nd December 1999.Apart from showing the inconsistency and inadequacy of the data, unjustifiable costs in the MSEB’s proposal, this submission discusses various possibilities for cost reduction and possibilities for increase in revenue (without increasing tariff). It also dwells on other issues of relevance such as service quality, metering, tariff structure, reduction in cross-subsidies, promotion of environmentally benign policies, and power purchase from independent power producers (IPP’s). It also requests MERC to reject the present proposal. It also provides a brief outline of the data and analysis required to be submitted as well as the procedures to be followed in the tariff revision case. It requests MREC to prescribe this to MSEB.

This is a summary of the presentation made by Prayas before the MERC during the Public Hearing at Pune. This submission also tackles two important issues, (1) it makes an estimate of the agricultural consumption and the T&D losses based on region-wise analysis of the agricultural consumption norm (hours of usage / year), (2) it argues for the need for transparency, accountability, and public participation in the regulatory process and also for the need of active initiative by the commission in this regard.

This submission is in response to remarks made by MSEB's Technical Director on Prayas’ estimation of the agricultural consumption. It demonstrates that the claimed high agricultural consumption cannot be explained away by pointing at alleged pilferage of electricity by rural households (as argued by the MSEB’s Technical Director). Prayas feels that such polemic cannot resolve this contentious issue. Instead, these discrepancies could be resolved only through institution of proper energy auditing systems.

This additional submission on MSEB proposal discusses the desired basis for the decision on revision of tariff and also the extent of tariff increase is required and justified. It also discusses some important issues in this regard such as ‘merit order dispatch’, agricultural tariff policy, and energy audits. This submission also lists out urgent tasks before MERC.

In this presentation (and the accompanying written submission - see next), serious shortcomings in the ‘merit-order dispatch’ followed by MSEB have been demonstrated by analyzing a case of dispatch from DPC with the conclusion that, as a result, MSEB suffered a loss of around Rs. 90 crores. The presentation also includes Prayas’ analysis leading to estimation of the agricultural consumption. This estimation, based on the official data provided by MSEB, established that the agricultural consumption claimed by MSEB is highly overestimated, while the real T&D losses are highly underestimated (30% and not 17% as claimed by the MSEB). Apart from these two important substantive issues, the presentation also argues the need for a new proposal from MSEB and repetition of the entire public participation process. It is argued that this has become necessary because, after the substantial changes made in the original proposal during the technical sessions has changed the nature and character of MSEB’s proposal.

This submission is an analysis of the MSEB’s revised tariff proposal and analyses the issues such as the hidden revenue and double counting of expenses by MSEB, MSEB’s inefficient operations and its higher costs (over Rs. 2,500 crores). This also covers important points such as estimation of the agricultural consumption and the T&D losses. It also suggests performance evaluation systems for MSEB’s operations.

This submission discusses issues such as disallowance of unregulated activities, difference in the availability and plant load factor (PLF) of MSEB’s thermal plants (and the loss of generation because of this difference), and faulty accounting procedures in relation to bill adjustments (B-80). In the end, this submission also discusses the need and direction for a balanced long-term view of the regulatory process.

The MERC gave a speaking order on 5th May 2001 wherein it decided tariffs for FY 20000-01. It can be seen on its web site www.mercindia.com. The MSEB, some of the agricultural and power loom consumers approached MERC with a review petition. The comments by Prayas on these review petitions, point to the issues accepted for hearing by MERC.

Written submission during the Technical Validation Sessions, FY 1999-00 at Mumbai: February-2000

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