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Sunil Wadhwa, Managing Director, North Delhi Power Limited (NDPL)

13 Jun 2011

The summer season has started in Delhi and with it the state's demand for energy has also increased. Delhi's total peak demand in the summer months touches close to 4,800 MW and more often than not, Delhi discoms have to buy expensive power from other states or short-term market which results in increasing their costs. InfralineEnergy's Chhavi Tyagi asks Wadhwa regarding the discom's preparation for the summer and the issues which North Delhi Power Limited (NDPL) faces being a Delhi discom.

Edited Excerpts

How prepared is NDPL for the summer? Are there going to be any power shortages this season?
NDPL has ensured that its consumers spend the summer in comfort by making all the necessary arrangements in advance. There are new capacity additions which have happened over the past year, which would help us tide over the increased demand this summer. However, it also depends on the intensity of the summer. Last year, it was very bad. We don't see any shortages this year.
What are the long-term issues faced by NDPL and the steps that have been initiated in order to resolve the issues? What are the major challenges faced by NDPL especially in the context of high-end consumers, post 2007?

As far as AT&C losses are concerned, things have been streamlined and we have reduced the percentage of AT&C losses to 13.5 percent. The new targets for AT&C reduction will soon be finalised. However, we have already brought down the losses to a great level and the present percentage comprises only around four percent commercial losses and the rest technical losses. Further reduction in the losses would be very difficult and slow. This would result in the drying up of the incentives which we used to get earlier.

The new challenge is the focus on green energy as this energy is going to be very expensive. The issue that we face is that the tariffs are not cost reflective and if we have to spend money on buying expensive energy like solar power, it would adversely affect the financial health of the discom.Exactly how all of this would affect the tariff is a question but there is an urgent need for the timely correction of tariff. We have already filed a petition with the Delhi Electricity Regulatory Commission (DERC) for the adjustment of the power purchase cost in the tariff on a regular basis. The order is awaited on this.

Critics say that the SERCs have failed in their most important job of fixing the tariffs for discoms, what do you have to say on this?

It's not that the DERC has not announced tariff in the past. However, the issue which is coming up is that the power purchase costs have gone up very high. There have been several reasons for that--the power plants which were expected to come up did not get commissioned; the summers have been very bad, especially the summer of 2009 was very bad, which forced us to buy power from outside and this created a revenue gap of around INR 700 crore for us.

The Sixth Pay Commission also resulted in dwindling of our financial resources considering that we had to pay vast amount of arrears going back to the past four years.

"We are working on getting a major portion of generation under our control. It could either be NDPL or our parent company Tata Power, though most of it would come from Tata Power. We already have around 30 percent with us today and going forward, we will keep adding more. In case, the phase two of the Maithon Power comes up, we will be keen to buy power from them."

Also, during the past year, for almost two to three months, the power purchases were made from outside in view of the delays in operation of the power plants at Jhajjar.

During this period, there was no tariff correction to take care of the increased power purchase costs. We are reaching a situation where the company has to now pay for the power purchase costs which basically defeats the principle of tariff adequacy wherein tariff must pay for the power purchase cost. This is a big cause of concern.

How has been the progress on the 108-MW power generating facility at Rithala? What was the reason behind the decision to foray into power generation - the issue of shortage of power or a natural business scale-up?
The plant has started generating power. The decision was taken considering the power shortage and with an intention to scale up our business as well. Since long, we wanted to have some power generating facility located in Delhi, which could be used in case of some grid disturbances taking place. As a result, we could separate some of our important installation which is not affected by the grid disturbances. Going forward, we plan to have 20-30 percent of the power generation in our control. We are also branching out of the country. For instance, Nigeria has also recently privatised its distribution business and we are seriously looking at providing technical advisory services to companies in Nigeria. For this, we are planning to float a subsidiary of NDPL in Nigeria.
What are your long-term plans about power generation? In case Tata Power bags another UMPP project, would NDPL be a recipient of the power generated?

It depends on the UMPP terms since the choice does not depend on the bidder. We would certainly like to get power from Tata Power.

"The biggest change that is needed in the public interest is to have a periodic adjustment of the power purchase cost in order to make the consumers aware of the real cost of the power as soon as possible. This would help in getting out of the present vicious circle, where the future consumers are burdened with the consumptions of the past consumers."

We are working on getting a major portion of generation under our control. It could either be NDPL or our parent company Tata Power, though most of it would come from Tata Power. For example, we have already tied up 300 MW from Maithon Power, which is a 25-year plan and 100MW from Rithala. So we have already around 30 percent today and going forward, we will keep adding more. In case, the phase two of the Maithon Power comes up, we will be keen to buy power from them.

Pune implemented a system of uninterrupted power supply, what are the hindrances in implementing a similar model in Delhi? How does uninterrupted and quality power supply can be enhanced amidst public perception with regard to service delivery?
The problem which existed in Pune does not exist in Delhi; we have enough power to maintain an uninterrupted supply to our consumers. The problem in Delhi is that though discoms have the required power but there has been no tariff correction to pay for this power. We have done our part and now we just hope that the necessary tariff correction takes place.
What policy changes on DERC's behalf can help in smoothening NDPL's operations?

The biggest change that is needed in the public interest is to have a periodic adjustment of the power purchase cost in order to make the consumers aware of the real cost of the power as soon as possible. This would help in getting out of the present vicious circle, where the future consumers are burdened with the consumptions of the past consumers. A power purchase cost timely correction formula which is called power purchase cost fluctuation formula referring to the periodic fluctuations in the past would be the biggest relief to both the discoms and the consumers. This would basically mean that the consumers would pay today rather than pay on a cumulative basis with a huge backlog along with interest at a later date. This is one policy we would welcome from the DERC.

Another important aspect that needs focus is the policy on the solar power. This policy needs to be promoted because the fossil fuels have become very expensive and this would only keep increasing further. Also, fossil fuels are limited in supply which is providing a push to this policy.

Is it feasible to evolve a rational tariff structure in Delhi where all types of consumers pay the same tariff?
I don't think that would work because electricity is a necessity, a comfort and a luxury for different categories of consumers. Electricity has to be charged differently depending on the usage of the electricity by the end-users. Indian electricity market requires differential pricing. However, there should not be a wide gap between different consumers. The Electricity Act itself mandates a gap of 20 percent and within this category there is the possibility of cross subsidisation. However, I would support a tariff structure in which consumers who consume less than say 200 units are charged lower than those whose consumption is more than that. The consumers whose consumption borders on 1000 units should be charged at the maximum marginal rate as these consumers are those who use maximum electrical appliances like ACs, washing machines, etc., and can easily afford to pay. This would provide the necessary incentive to consumers to consume lesser electricity, which, in turn, would encourage energy conservation. Therefore, in an economy like ours, these considerations should play a role in the fixation of tariff.
Do you have any programmes to educate the consumers in Delhi regarding the various aspects of billing, power costs and tariffs?
The primary role of fixing the tariff is that of the regulatory commission and this year they have initiated a few steps to educate the consumers in the manner the tariff is fixed. On our side, whenever we hold meetings with the various RWAs and such associations, we explain to them our experience with power purchase costs. Amongst other things, we also discuss the need for tariff correction with the consumers which is basically a sensitisation process. However, I appreciate the role that the DERC is playing now compared to the past.
How would time-of-day metering help the discom and the consumer?

A real difference in the peak load demand would be made by time-of-day metering. If there are different rates of power during the day then automatically the consumers would be incentivised to reduce their consumption during the on-peak hours when the power is more expensive. We are advocating with the DERC for this and we will start a discussion on this during the discussion on our tariff petitions.

"It needs to be also taken into account that the base load cost and the fuel cost of power have also gone up which means that the tie-up from the long-term sources is not any more cheap."

The time-of-day metering will not make a difference in terms of the discom's profitability, but it will help in reducing the overall power purchase cost. This reduction in the power purchase cost would ultimately benefit the consumers. When the consumers' consumption will go down, it will mean lesser demand during the peak time which would result in surplus power for the discom. This can then be sold to other states at a higher price. The extra proceeds that the discom will receive will eventually bring down the net power purchase cost for Delhi's consumers.

What are the steps that NDPL has taken and plans to take in near future to avail power at a competitive cost?
One of the most basic reasons for increase in our cost of power is that we are forced to buy power from outside in order to supply uninterrupted power to our consumers. In case, we opt for load shedding for six to seven hours per day, our costs would come to be much lower. The problem is that if we make arrangements for say 1000MW, the demand always exceeds this arrangement by 200-300MW. However, being a responsible discom, we went and tied up for this additional power required from power exchanges as well as on bilateral basis in 2008-09 till this year. This was done on the assurance given to us by the SERC or DERC that we will be reimbursed.

Also, we have already signed up long-term PPAs in anticipation of demand. These PPAs are now getting commissioned and 2011-12 is the first year, where we as a discom, will find ourselves power surplus. These PPAs have ensured that for the next five to six years, we will be marginally surplus and there would not be any need to buy any expensive power till that time. To this, we will keep adding more and more tie-ups.

However, it needs to be also taken into account that the base load cost and the fuel cost of power have also gone up which means that the tie-up from the long-term sources is not any more cheap. In a nutshell, we have tied up long-term power, which will obviate the need to go for short-term power for at least the next four to five years. Though it is the cheapest source of power available in India at this stage, however, it cannot be denied that even in the long-term, power is becoming expensive day by day with swelling up of the fuel costs.

Though our endeavour is to be the cheapest power supplier of India but it is not going to be cheaper than what it is today!
What steps is NDPL planning to tackle the regulatory uncertainty which, indeed, is among the toughest challenge?
We proactively share our viewpoints with the regulator on a timely basis and explain to them the various issues and difficulties faced by us. However, other than the tariff delays, there are hardly any other uncertainties faced by us. Though there have been cases where there have been differences in opinions and we have approached the Appellate Tribunal, we believe that it's a part of the game.

(InfralineEnergy thanks Sunil Wadhwa for sharing his valuable insights with our readers. The column `In Conversation', is a platform to engage experts from various sectors to share their views on the different transformations in the Indian energy sector.)