Jagmohan Sharma
Kashmir was rocked recently, once again, on electricity tariff issues. The tremors don’t seem to have died down yet. However, there seems to be more “sound than light” on the issue with Kashmir politicians resorting to upmanship for obvious political reasons.
The problem started when it came to be known that Kashmir Power Distribution Company (KPDCL) had submitted a tariff petition to the Joint Electricity Regulatory Commission, J&K/Ladakh (JERC J&K/Ladakh) for seeking approval for tariff for supply of electricity to the electricity consumers for the financial year 2025-26. Through one of the several submissions in the document, KPDCL requested the Commission to enhance the rates of electricity consumed during the morning and evening peak hours by 20 percent. The obvious reason being to cajole the electricity consumers not to waste electricity during the peak hours when wastage puts the power system under severe strain.
KPDCL hardly had a choice as far as filling of petition was concerned. After all the corporation has to run its business of providing electricity to its consumers as per the provisions/regulations of the Indian Electricity (Act 2003).
Before proceeding further ahead with the tariff petition let’s have a look at the following data:
J&K consumed 20,644 MU (JPDCL: 8808 MU and KPDCL 11836 MU) of electricity during FY 2023-24. The corresponding revenue collected by JPDCL and KPDCL was Rs. 4214 cr. (JPDCL: Rs. 2347 cr. and KPDCL: Rs.1867 cr.).
The approximate cost of electricity purchased from various suppliers by the UT of J&K was Rs. 9,500 cr.
Therefore, there was a deficit of around Rs. 5,286 cr.
This deficit is purely a raw value as the cost of salaries to the employees, cost of operation and maintenance and administrative costs of operating the power utilities are not included in the said amount. If that’s factored in, the losses will jump to quite a few thousand crores of rupees more.
Coming back to tariff petition by KPDCL it must be understood that it is statutorily incumbent on the power utilities to submit tariff petition to their respective Regulator as per sections 62 and 64 of the Electricity Act.
Key aspects of the process for tariff petition for a Discom is clearly laid out in the IEA-2003 which is summarized as under:
Mandate: Under Section 62 and Section 64 of the Electricity Act, 2003, distribution licenses are required to apply to the relevant State/Joint Electricity Regulatory Commission (S/JERC) for the determination of tariff for the retail sale of electricity.
Annual Requirement: Discoms are typically required to file a petition at the beginning of each financial year, sometimes within a specified timeline like by October 31st.
Aggregate Revenue Requirement (ARR): The tariff petition is often referred to as an ARR petition. It is an extensive document detailing the Discom’s estimated total revenue requirements for the upcoming year, which includes:
Power purchase costs
Operation and maintenance expenses
Capital investments
Return on equity, interest on loans, and depreciation
True-Up Petitions: In addition to the annual ARR, Discoms also file “true-up” petitions, which provide audited reports of their actual past performance to account for any variations between estimated and actual expenses and income.
Regulatory Scrutiny and Public Consultation: The S/JERC reviews the petition using a “cost-plus” methodology, ensuring that only prudent costs are recovered and that there is no undue burden on consumers. The process involves public notices, inviting objections and suggestions from the public and stakeholders, followed by public hearings, before a final tariff order is issued.
Regulations allow discoms to plan for recovery of their legitimate costs and ensure that the tariffs are transparent, fair, and determined in a regulated manner, essentially as the electricity distribution business is a monopoly in India. The regulators ensure that the consumers are not unnecessarily fleeced by the distribution companies.
In short, the power utility approaches the regulatory commission with a document that spells out its business plan including identification of its sources of funds for paying to the power generators, plan for reducing the technical & commercial losses over a specific period and methodology to be adopted for making the utility self-reliant/self-sustainable. The crux of the matter is that the utilities should not only become self-reliant but also ensure quality power to every section of the consumers in their domain of operation. The tariff petitions are put into public domain by the concerned utility and the regulator so that the electricity consumers are fully aware of the “engineering and the financial” intent of the electricity utility and they can approach the regulator with their points of view and objections if any.
The regulatory commission calls for public hearings wherein all the stakeholders are given full opportunity to put forth their points of view / objections to the proposal put up by the utility.
It is after due deliberations/diligence and thorough understanding arrived at by the commission that the tariff petition is approved.
The approval of a tariff petition by a regulatory commission is binding on the concerned state/UT Government and its instrumentalities. The Electricity Act, 2003, places the power to determine and regulate tariffs exclusively within the domain of the autonomous regulatory commissions, explicitly seeking to distance the Government from this function.
Key points confirming this principle are mentioned as under:
Statutory Mandate: Tariff determination is a statutory function of the regulatory commission, and any private agreement or executive action (such as a Government directive) that is contrary to the commission’s approved tariff lacks legal authority.
Autonomy of Commissions: The Supreme Court of India has consistently reaffirmed the autonomy and authority of the Regulatory Commissions, ruling that they are not bound by directives from the state or central Government concerning tariff matters under (Section 108) of the Electricity (Act, 2003).
(Section 108/109 of the Electricity Act states that in the discharge of its duties the commission shall be guided by such directions in matters of policy involving public interest as the state/UT Government may give to it in writing. The decision of the state/ UT Government will be final in this regard.)
Force of Law: The tariff orders and regulations issued by the regulatory commissions have the force of law and must be adhered to by all concerned parties, including distribution licensees and state entities.
Therefore, the state Government cannot unilaterally overrule a tariff order passed by the appropriate regulatory commission. The only recourse for a party aggrieved by a commission’s order is to file an appeal before the Appellate Tribunal for Electricity (APTEL).
However, as stated above, section 108/109 gives powers to the state/UT Government to issue directions to the Commission when public interest gets involved.
The state/UT Government is also within its rights to declare subsidies for vulnerable sections of the society, businesses or agriculture sector, but the Governments are bound to reimburse subsidies to power utilities as per section 65 of IEA-2003 so that their liquidity is not impacted. This is a statutory obligation under the IEA-2003.
In fact, it provides for the Governments to provide timely and advance payments for any subsidies it chooses to grant to specific consumers or classes of consumers.
Having gone through the legal provisions of IEA-2003 regarding the tariff petition, the point I am trying to make is that the tariff petition should be understood in the right perspective as it doesn’t only request the commission for approval of tariff but also indicates its business plan and also the plan to reduce technical and commercial losses in a planned manner. This petition is open to public debate and is not a hush-hush matter. Pulling down the document from the websites of utilities is akin to “throwing the baby out with the bath water.” Consumers don’t have access to the document now.
Secondly, there should be wider debate (not a slanging match) amongst all the stakeholders of Jammu and Kashmir about how to reduce the commercial losses in the power sector. Smart metering is a part of the game, but is it really enough?
As has been mentioned above there was a loss of Rs. 5,286 cr. over a power purchase of Rs. 9,500 cr. in 2023-24. I am sure 2024-25 must not have been any different.
Is this sustainable?!
For the sake of our own selves and more importantly for our posterity this is a question to be pondered over. Reduction in commercial losses is the key to “quality power” in Jammu and Kashmir. Uproar isn’t going to help !!
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