'Lavy of high cross-subsidy surcharge, additional surcharge by states making manufacturing industry non-competitive'

New Delhi: National Electricity Policy enunciates that the amount of Cross-Subsidy Surcharge (CSC) and the Additional Surcharge (AS) to be levied on consumers who are permitted open access should not be so high that it eliminates competition which is intended to be fostered in generation and supply of power directly to the consumers through open access.

Currently, the Cross Subsidy Charges and Additional Surcharges being levied by various State Governments/State Electricity Regulatory Commissions in many cases on the power purchased under open access are exorbitant and is deterring the industrial/bulk consumers in the said States from purchasing power through open access. As a result of this action, the power generating plants located in states other than the consuming state are suffering huge losses.

Apart from this, the industrial consumers of the said states are also deprived of getting power at cheaper rates. Experts say that High Cross Subsidy Surcharge and Additional Surcharge are increasing the cost of power for the industrial user which in turn increases their cost of production and makes them uncompetitive in the international market adversely impacting export of goods from India.

The Electricity Act 2003, provides for a progressive reduction in Cross Subsidy and Additional Surcharge but no State Government/ State ERC has so far ever reduced them. Some of the states have increased these surcharges making it even more difficult for power producers to sell power through the open access route in their state. Across majority of the states, the Cross Subsidy and Additional Surcharge is in the range of Rs.1.2/ Kwh to Rs.4.14/ Kwh. Such a high level of Cross Subsidy/ Additional Surcharges seems to be the key barriers in effective implementation of open access.

The Tariff Policy 2006 states that Additional Surcharge can be allowed only if it is conclusively demonstrated that a licensee's fixed cost commitments have become stranded due to open access consumers. Despite lapses of several years, no uniform methodology is followed for calculation of Additional Surcharge across states. It also hovers around Rs.1/ Kwh on average.

It is pertinent to mention that today almost no Long Term PPAs and Medium Term PPAs are being executed by any of the DISCOMs and most of power generated by Private Power Producers is being sold to Power Exchanges (IEX) at very low prices ranging between Rs.1.50 to Rs.2.50 per unit, which partially covers the fixed cost of power produced.

In the given circumstances, the Draft Electricity (Amendment) Bill 2020 so far as it proposes to amend Section 42(2) and Section 61(g) of Electricity Act, 2003 so as to make it mandatory for the CERC/SERC to reduce Cross Subsidy in the manner as provided in the Tariff Policy, is a welcome step and this will definitely benefit both the industrial consumers as well as the independent Power Plants across the country. But, the state governments/ state DISCOMs are vehemently opposing the said amendment as it would reduce the profitability of Discoms. If the Central Government wants to ensure supply of cheap power to industrial users through open access then this issue needs to be addressed most urgently.