Bescom Proposal Welcome

This blog post originally appeared in Deccan Herald.

In a recent submission as part of its Annual Revenue Requirement (ARR) for FY19, the Bangalore Electricity Supply Company Limited (Bescom), under the title “New Proposals,” has demonstrated some progressive ideas. Particularly noteworthy are the suggestions to separate tariff for consumers having power demand of more than 1 megawatt (MW), to make a distinction in the way fixed and variable charges are recovered, and to design a separate tariff for Electric Vehicle (EV) charging stations.

At a time when most utilities are trying to dissuade consumers from moving to open-access by increasing components of variable charges, Bescom’s new proposal shows strategic thinking and could spur further competition in the sector.

The proposal for a separate tariff design for consumers using more than 1 MW power is a direct fallout of the growing chorus against open-access by Electricity Distribution Companies (Discoms) and regulators across the country. Bescom has argued in the past that while open-access was welcome when the Electricity Act, 2003, was introduced, it revealed several loopholes over time. Frequent switching of consumers between open-access and utility supply, insufficient recovery of crosssubsidy, stranded generating assets and a retail tariff design that is not reflective of costs, made the system unfavourable for Discoms.

In its petition to the ARR, Bescom states that it has 977 consumers above 1 MW (the category eligible for open-access) in its network. Of these, 175 to 200 are already procuring electricity through the open-access (approximately 1,359 million kilowatt-hour). By a conservative estimate of Rs 6.65 per kWh energy charges as proposed in the current petition, the utility potentially loses out about Rs 9,037 million through electricity sales to these consumers.

It raises a valid concern that further tariff increases (which is part of every tariff approval cycle) could push more people out of the network. Bescom’s proposal to resolve this focuses on narrowing the gap between its incurred fixed cost (due to power purchase) and recovered fixed cost (through retail tariff). Currently these figures are skewed — for FY 2017, Bescom’s approved fixed and variable charges were in the ratio 49%:51% (Rs 8,217 crore : 8,720 crore), while the revenue received was 14% : 86% (Rs 2257 crore : 13604 crore).

Bescom’s new proposal requests that this rationalisation between fixed and variable charges be carried out initially at the High Tension (HT) consumer level (typically > 1 MW). In this exercise, Bescom has committed to overall tariff being neutral, that is, the overall revenue recovery from the tariff category would remain the same; but the fixed variable charge recovery would slowly move to reflect the costs that Bescom incurs.

This will result in increased fixed charges and significantly lower variable charges (51% of earlier variable charges). Bescom believes that this will be an incentive for consumers to stay within the network.

How does this resolve the open-access issue? Open-access consumers often move out of the network in search of lower variable charges, but are not concerned about paying fixed charges. The proposed new charges, will make it hard for consumers to find electricity at more competitive rates. Even if they find such a supplier, the new formula ensures that Bescom recovers at least 49% of the revenue requirement from the consumer, and a little more (through open-access charges, cross subsidy surcharge, etc).

Separate tariff for EVs:

Bescom has aimed to build on the Centre’s efforts and the Karnataka Electric Vehicle and Energy Storage Policy 2017, to make Bengaluru the “EV Capital” of India. Bescom has proposed to setup charging stations and charge separate “time of day tariffs” for Alternating Current (AC) charging (Rs 4.85/kWh from 0600-2200 hrs and Rs 3.85/kWh from 2200 hrs-0600 hrs), Direct Current (DC) fast charging (Rs 5/kWh and Rs 4.40/kWh, respectively) and bus charging (Rs 5.5/kWh and Rs 3.85/kWh, respectively).

The charges proposed are well within the variable tariff rates that are fixed for residential ones within the BBMP limits (the LT-2(a) category). This closeness to residential tariffs could be an endeavour by Bescom to attract consumers to its proposed charging stations. Also, the reduced tariffs at night is a signal to encourage charging at night, to flatten the demand curve.

But how will it address the needs of corporates seeking clean energy options via open-access and driven by green credentials? How can it prepare for a future when storage solutions get cheaper, allowing consumers greater choice of deserting the grid? Bescom and other utilities need to work towards developing capabilities in such scenario.

On the proposal to setup charging stations and provide concessional tariff for EVs, Bescom’s petition doesn’t answer questions like how it would ensure that cleaning the grid goes hand-in-hand with strategic business development plans? Answers may not be easy, but through its progressive proposal, Bescom has demonstrated a refreshing willingness to set a new example.