In a move that will imply some relief in future to electricity consumers, the State government has given in-principle approval for absorption of previous losses of the Tamil Nadu Generation and Distribution Corporation (TANGEDCO) over a period of time.
In legal parlance, such losses, meant to be recovered from the consumers in future, are called regulatory asset, which actually forms part of liabilities. The absorption of the losses is sought to be achieved through amortisation. To put it in layman's language, if the government does not come forward to amortise the regulatory asset, that much of the losses will have to be recovered from consumers.
In its communication sent about 10 days ago, the government informed the Tamil Nadu Electricity Regulatory Commission (TNERC) that exact details and mechanism would be worked out in conjunction with tariff revision and the TANGEDCO's improvement due to internal savings. In the middle of March, the Commission had addressed the issue to the government. An official explains that the government's idea is to ensure that the losses are neutralised through its support to share capital of the power utility and saving of cost to be accomplished by internal efficiency of the TANGEDCO.
According to the Commission's latest tariff revision order, the regulatory asset is proposed to be amortised over five years, commencing from 2013-14. Once the exact figure of the regulatory asset is arrived at, one-fifth of the regulatory asset will be amortised along with the carrying cost. When the tariff order for 2014-15 is issued, the regulatory asset will be re-worked and one-fourth of such regulatory asset amortised in that tariff order along with that cost. It will go on till the entire regulatory asset was amortized.
The Commission did not provide, in its tariff order, the exact figure of regulatory assets and stated that only during next year, the exact figure could be worked out as full data would, by then, be available.
Even in its previous tariff order issued in July 2010, the TNERC allowed the creation of regulatory assets to the tune of around Rs.17,456 crore, taking into account the projected revenue gap to be experienced by the now-defunct Tamil Nadu Electricity Board from 2010-11 to 2012-13. At that time, when asked whether the tariff hike in future would be steep as the TNERC accepted the principle of regulatory assets, the then chairman S. Kabilan had replied that electricity consumers' interests would definitely be taken into account at the time of carrying out the next power tariff revision. The Commission would use its discretion and it would not force a “sharp hike.”
In the latest order, the Commission stated that the creation of regulatory asset could not be avoided in view of the accumulation of uncovered deficit over a period due to phenomenal load growth, less addition to the generating capacity, high power purchase costs, increase in costs and non-filing of tariff petition. If tariff was to be increased for the entire revenue gap, it would have resulted in a tariff shock. It was also to be noted that the current tariff hike was to the tune of Rs.7,875 crore, accounting for average increase of 37% over earlier tariff.
