Cost-reflective tariff key to ending Tamil Nadu’s DISCOM woes

Annual filing of ARR and communication of data to stakeholders also need of the hour for TANGEDCO’s financial turnaround 

The total loss incurred in the FY 2020-21 by electricity distribution companies (DISCOMs) in India is estimated to be Rs90,000 crore. Many DISCOMs are unable to pay the generation companies on time due to the losses. Adding to this, the COVID-19 pandemic saw a reduction in demand from commercial and industrial consumers, which impacted DISCOMs’ finances. The distribution companies in India are loss-making and debt-ridden, and Tamil Nadu’s DISCOM is no exception to this fact. 

Tamil Nadu Generation and Distribution Corporation Limited (TANGEDCO) is a state-owned electricity utility that serves about 3.07 crore consumers. In FY 2019-20, the annual electricity demand in the state was 1,14,033 million units (MU), while the total installed generation capacity is 31.89 GW. Being the only electricity utility in Tamil Nadu, TANGEDCO’s services are paramount for the overall economic development of the state, and for the social and environmental well-being of all its citizens. In the recent past, most of the DISCOMs across the country have accumulated substantial debts. TANGEDCO accumulated a debt of Rs1,01,173 crore by FY 2019-20. Power Finance Corporation (PFC), a Government of India undertaking, has graded all the power utilities across India. TANGEDCO has been graded as having very low operational and financial performance capability.

Reasons for accumulating debt

High cost of energy supply, high Aggregate Technical, and Commercial (AT&C) losses, and inability of cost recovery through its billing, etc, are just some of the reasons for the rising debt. The main reason, however, is the lack of cost-reflective tariffs. The electricity tariffs for various consumer categories are below TANGEDCO’s cost of supply. The cost of supply includes all fixed and variable costs (energy purchase costs) of TANGEDCO. From FY 2011-12 up until FY 2018-19, the variable charges are slightly under-recovered or on par. Only in FY 2017-18 were the variable costs over-recovered by 3%. The fixed costs were under-recovered from FY 2011-12 up until FY 2018-19 (the same trend is assumed to have continued for FY 2019-20 as well). On average, there is a shortfall in fixed cost recovery of Rs6,917 crore every year. The reason for the under-recovery of fixed costs inherently goes back to the tariff design. As per Tamil Nadu Electricity Regulatory Commission (TNERC), the fixed costs form 50% of the net ARR, while the approved demand/fixed charges recover only 19% of the ARR. This leads to a shortfall of 31% of the net ARR every year. Hence, there is a need for tariff rationalisation such that fixed costs are fully recovered.

Delay in disclosure of financial status and data to public by TANGEDCO

The Ministry of Power (MoP) regularly publishes the debt of the DISCOMs in India, while PRAAPTI, a dashboard from MoP, gives the dues to be paid to generation companies. TANGEDCO is yet to be regular in publishing its financial status. According to TNERC regulations, TANGEDCO is supposed to publish its balance sheet and profit & loss statements on its website for every financial year (FY). For FY 2019-20, the balance sheets were published only in the year 2021. And the balance sheet for FY 2020-21 is not published as of September 20, 2021.

One of the ways to communicate the financial performance is through filing the Aggregate Revenue Requirement (ARR) in their tariff orders. But TANGEDCO has not filed an ARR since 2017. This creates a communication gap between TANGEDCO and its stakeholders. Also, not filing the ARR goes against the TNERC’s regulations, which says the following: 

“1. The Distribution/Transmission licensee shall file the Aggregate Revenue Requirement (ARR) on or before 30^th November of each year in the format prescribed, containing the details of the expected aggregate revenue that the licensee is permitted to recover at the prevailing tariff and the estimated expenditure. 

2. ARR shall be filed every year even when no application for determination of tariff is made.”

Most states in India have the good practice of filling the ARR every year. The filed ARR goes through a review process and then is eventually trued-up. The entire process is publicly available on the corresponding websites of the regulatory commissions. TANGEDCO’s trued-up values are available only up until FY 2015-16. There are estimated/approved values of ARR available from FY 2016-17 to FY 2018-19. But they are not yet revised and trued-up. Data such as the ARR, total consumption, revenue from sales, revenue gap, etc., are not available in the public domain for FY 2019-20 and FY 2020-21.

Below is the list of ARR publicly available from some of the major Indian states. A tick mark indicates the availability of ARR in the public domain. Tamil Nadu is the only state that did not file an ARR in the last three FYs. 

Data transparency an issue

The unavailability of data in the public domain indicates a need for better data governance by TANGEDCO. Being a public utility, having an open data policy and proactively sharing data through standardised formats are imperative for an informed public discourse on electricity tariff determination. This includes the mandatory filling of ARR of the DISCOMs. Storing government data in open formats would enhance transparency and accountability while encouraging public engagement. Understanding the importance of sharing the data with civil society, the National Data Sharing and Accessibility Policy (NDSAP) emphasises making data available for legitimate and registered use. 

While Tamil Nadu is not an exception to the country’s DISCOM woes, it has the potential to set a precedent for debt-ridden states to follow and come out of this downward financial spiral that has so far shown no signs of stopping.  

Umesh Ramamoorthi is a data research analyst, utilities, energy and water, at Auroville Consulting

About The Author

Umesh Ramamoorthi

See author's posts