Archive for March 21st, 2014

Halving Delhi’s Power Bills: What is the Truth?

21 March 2014
I was provided a link and advised to read an article (by who is not germane to discussion) published on the website of CanaryTrap.In: AAP KE PAAP: Rs 60,000 bribe to the Delhi voter. What caught my attention was its authorship. It was penned by Arun Agrawal, who has earned a well-deserved repute as an Anti-Corruption campaigner with a nose for sniffing out real scams through meticulous research. He has been party to several public interest litigations (PIL) too with a degree of success.
Since his word was not to be taken lightly, I decided to take a close look at his article. His entire argument pivots around the following lines he picked up from the Delhi Election Manifesto of Aam Adami party (AAP).
AAP promises a reduction of consumers’ electricity expenditure by 50%. This will be done by ordering:
1. audit of discoms
2. rectifying inflated bills and
3. getting electricity bills checked by independent agencies. Licences would be cancelled of any discoms that refuse the audit.
Based on this premise, Agrawal proceeds to summarize [emphasis added]:
1.   <It was not only in the nature of a contract but an actual contract

. A unilateral offer was made by Kejriwal which could be accepted by performance by the voter by voting for him.>>

2.   <<Kejriwal, deliberately made a false promise to reduce the electricity bill by half when he knew that it was impossible to fulfill the promise.>>
3.   <<The manifesto also stated the manner in which the reduction of electricity expenditure of the consumers would be brought about. It was never stated that it would be done through subsidy.>>
4.   <<bribing the Delhi electorate with a false promise of enriching them by around Rs 60,000. It was the largest bribe that was ever offered to the electorate by any party, be it in cash or in kind.>>
5.   <<The economic fact was that the three distribution companies were buying all of their electricity from PUBLIC SECTOR Units which were subjected to multiple audit and also to scrutiny by the regulators like CERC and DERC. It is also a fact that 80% of the price was paid to the generating companies by the distribution companies for purchase of electricity. If the purchase of electricity is in itself 80% of the cost, then how was it possible to reduce the tariff by 50% from the remaining 20% of the cost? No amount of audit of 20% of the cost could bring about a reduction in tariff by 50%.>>
I was first taken in by his line of argument going by the “Evidence” he had adduced. But a closer look doesn’t seem to support Agrawal’s stand. His charge of Bribery can be summarily rejected because election promises or pledges are routinely made in the manifestos of political parties operating in a Constitutional Liberal Democracy to woo voters; and often these are not kept on one pretext or the other. To call such promises False Promises, Misleading, Cheating, impractical, non-deliverableis one thing, but to term it a bribe is untenable. With the charge of bribe out of our way, we turn our attention to the pivot: Delhi Election Manifesto of Aam Adami party (AAP). [See below: The first page is the first of the four pages of English Crux of the original Hindi manifesto, and the next three pages are pages 13-15 of full Hindi manifesto]
The first page of the above document bears out what Agrawal had stated. But the Manifesto in English was not the Full Manifesto of AAP but only the crux or highlights of the Full Hindi Manifesto of AAP. What was reduced to mere one sentence in English has been given full three pages in the Hindi manifesto. The perusal of Hindi document throws up following relevant points.
1.   Power Tariffs wouldn’t be increased unless the power distribution companies (PDC) are audited.
2.   The audit would pay special attention to energy audit of power meters, which appear to register more consumption than actual, whether companies have padded up expenditure by buying above market rates from group companies and deflated revenues by selling power to group companies below cost price, whether many consumers have been charged and paid for energy consumed but shown in account books as Nil-Consumption accounts, what are the gains made through reduction in distribution and commercial losses (an euphemism for unbilled/ stolen power), and so on.
3.   Through the implementation of these steps the power bills of Delhi consumers will be halved or even less.
The expectation (or the promise) that the power bills will be halved comes right after the commitment that power tariffs will be not be hiked unless PDCs are audited.This shows that AAP is not completely divorced of realism that economic factors (not profiteering) may compel rise in tariff in future; but it would be done only after eliminating the possibility of fudging and profiteering. One important point Agrawal failed to investigate as to why there is a talk of 50% reduction in power bills. Why not 80%? Or 40%? Before we seek answer to that a small digression. Bharatiya Janata Party (BJP)’s Delhi unit had put up Facts and Figures sheet on issues of pressing concerns to Delhi electorate.
The above provides only the first page regarding power out of the total eight pages of the original devoted to other issues like transport, law and order, etc. It carries uncanny resemblance to the issues raised in the AAP manifesto. Two points in this document particularly strike out:
1.    In 2010, DERC Chairman Brijender Singh had rejected the claims by DISCOMS of incurring losses and recommended slashing of Power Tariff. Further adding that DISCOMs were making huge profits and tariffs should be reduced by 23%.
2.    After Brijinder Singh’s retirement as DERC Chief, power prices were hiked by 23% in 2011 and 32% in the year 2012 by new chief in Delhi. Despite repeated demands Delhi government has not allowed the CAG audit of the accounts of DISCOMs.
It is the same DERC in which Agrawal had reposed his faith when he said that PSU generating companies are subject to scrutiny by CERC and DERC. Now, let us turn our attention to the meaty point, which several interlocutors before Agrawal have made: <<If the purchase of electricity is in itself 80% of the cost, then how was it possible to reduce the tariff by 50% from the remaining 20% of the cost?>>. The Business Standard (BS) article dated 24th December 2013 (Why cutting Delhi electricity tariff by 50% is impossible) that Agrawal cited and the New Indian Express (NIE) news analysis (Delhi’s Power Economics not so Simple!) of 26th December 2013 say that bulk power cost paid to NTPC by PDCs has moved from 1.42 per unit in 2003 to 5.71 per unit in 2013. Strangely both say the increase in bulk power cost is 300%, when a simple calculation will show it is more than 400%. BS was content with arguing that with 300% cost increase (now at 5.71/unit) in purchase of bulk power, which constitutes roughly 80% of the highest slab consumer tariff (consumer unit rate in Delhi for the first 206 units is Rs 3.90, for the next 206 units it is Rs 5.80 per unit and after that it is Rs 6.80 per unit), it is impossible to have 50% reduction in power bills. However, NIE was not content with this superficiality and asked the obvious question: How did the PDCs survived all these years with such huge under-recoveries? [Of course, PDCs have claimed to have unrecovered costs of anywhere between 11,000 Crores and 20,000 crores for all these years. And of course as BJP says Delhi government has been providing an overall annual subsidy of 3,450 Crores.] The answer received from PDC is a bit complicated. While the cost of bulk power went up by “300%” in past 10 years (uniformly or in chunks?), how come the consumer tariffs went up by only 65% mainly in past 2 years? (Is that why Delhi government had to provide subsidy of Rs. 3,450 Crores.? If so, how do these PDCs claim to have unrecovered costs of Rs. 11 to 20 thousand crores?)
<<This is thanks to a significant reduction in what is called technical and commercial loss, an euphemism for theft! BSES claims that this loss, or leakage, which was as high as 57 percent at one time, has come down to a “world record” level of 17 percentthat is a reduction of a whopping 40 percentage points. In other words, the amount saved between 2003 and 2013 is Rs.37,500 crore or Rs 7,500 crore per annum [@7500 Crores/annum, the savings for 10 years would be 75,000 Crores], equivalent to 25 percent of the capital’s annual budget. Naturally, the firm claims, it has resulted in a major saving on subsidy outgo.>>
NIEdoesn’t raise this question, but it arises innocuously and would prove bothersome. If losses or leakages are reduced then PDCs need to buy that much less power from power generation companies.
Suppose aggregate consumer demand is 100 units, then earlier PDCs had to buy 232 units of bulk power to meet the demand for 100 units, whereas now they have to buy only 120 units. The savings is thus 112 units. However, it still doesn’t explain how they can make money, because those 112 units saved are now neither bought nor sold. PDCs can make money only if the cost of power showed in the energy bill of the consumer is loaded by the cost of LOST 132 UNITs onto the 100 units actually supplied; and even though loss/leakages were reduced to 20 units, the loading continued to be of 132 units. Then, and then alone it is possible to save 75,000 Crores (or 37,500 Crores). If this is what is happening, there is no saner explanation in sight, then by fudging the figures of actual power loss/leakages and claiming higher power losses to pad up profits becomes an easy game. [Is this what explains the huge difference in the cost of bulk power in Delhi and Mumbai that BS pointed out: A comparison of electric bills in Mumbai (Tata Power consumer) and Delhi (BSES Rajdhani Power Ltd consumer) shows that energy charges in mumbai accounts for nearly 41% of the total bill, while in Delhi it accounts for 84% of the bill] The practice of recovering the cost of lost/leaked power from power supplied may be justified through some reasoning (Oils companies have to do it for evaporation losses), and may even have regulatory approval, but without proper oversight and verification of actual losses/leakages the practice is prone to gross abuse.
That probably explains what Brijinder Singh, Chairman of DERC in 2010, had said according to both AAP and BJP: <<Power companies had projected Rs.630 crore losses for 2010-11. However, Brijender Singh concluded that they would make profits of Rs.3,577 crore, which, if passed on to the consumers, would result in 23 percent reduction in tariff>>. Now we are very near the solution to that magic figure of 50% reduction in power bills as contended by AAP: <<In 2010, if your electricity bill was Rs.100, Brijender Singh wanted it cut by 23 percent. So the bill should have been Rs.77 per month. In 2011, under a new regulatory authority chairman, P.D. Sudhakar, the tariff was hiked by 22 percent, instead of lowering it, so your bill went up to Rs.122. Then again, in 2012, the tariff was hiked further by 32 percent, to push the bill to Rs.161 per month. …in Brijender Singh’s view, in addition to the 23 percent cut he had recommended, there was also scope to reduce it further in the years to come. Accordingly, instead of Rs.77 per month or lower tariff, you are still paying double — Rs.161.>>
Most Readers would appreciate that power bills in Delhi are not an open and shut case as made out by both Agrawal and Business Standard. Agrawal was particularly harsh and intemperate in his opinions and remarks. He wrongly sensationalized the whole issue. He needs to seriously reexamine and reassess the facts of the case; and shouldn’t squander away his painstakingly built credentials. On the other hand, New Indian Express did a highly credible and excellent analysis for a paper belonging to mainstream media, which often shows great bias in its news coverage. I conclude with the opening remarks made in the NIE analysis [kudos to them].
<<Only a proper cost audit by an independent agency, like the office of the Comptroller and Auditor General of India, can ascertain if there is, indeed, scope for a large cut in the capital’s power tariff – which the Aam Aadmi Party promises to halve. The power utilities in the capital which distribute electricity in the city as also the Aam Aadmi Party have put forth their arguments in detailed letters to the administration, copies of which are with IANS. Not surprisingly, they all sound equally convincing.>>
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