In other words, SBI Caps expected the price of bulk power to go up from Rs 2.32 to Rs 2.95 by 2005, a rise of about 27 per cent, in actual terms. Instead, the bulk supply cost has dropped by about 8 per cent. For this, the credit goes to Transco and the various public sector units that supply power to Delhi. It is very strange that while the cost of bulk power being supplied to the Distcoms is actually dropping, and they are also bringing down the Aggregate Technical and Commercial (ATC) losses, the revenue gap of the Distcoms is actually growing. It does appear that their ability to manage their ARRs to their advantage is quite in excess of their ability to manage the Distcoms.
 
POSTPONING TARIFF HIKE FOR THE FUTURE

Once we dispose of these myths being propagated by those who have got us into the mess in the first place, we need to look at what the DERC has actually done and its impact in the future. In the tariff order for 2005, DERC has created what it calls regulatory assets to the tune of Rs 548 crore for and the rest of the revenue deficit of Rs  320 crore has been passed onto the consumer through a tariff hike of 10 per cent. The regulatory asset of Rs 548 crore would now become a part of the capital base of the Distcoms. The current year’s profits of Rs 205 crore have been allowed to be offset against this revenue gap and converted to capital assets on which the consumers will have to pay a 16 per cent rate of return on equity in perpetuity. Thus creation of regulatory assets is merely shifting of the current burden on to the future and hoping that it will some how go away. If this postponement of payments for the future had not been adopted, the increase in tariffs would have been a whopping 30 per cent. But postponing this tariff hike does not address the underlying issues in any case. By “absorbing” Rs 160 crore this year as requested by Delhi government in order to remove the tariff hike, the Distcoms have stated clearly that they consider this to be an additional regulatory asset. It is not that they are actually foregoing their profits — the Distcoms profits at 16 per cent rate of return on equity and 50 per cent of ATC savings beyond committed ATC figures are guaranteed irrespective of the revenue gap.  So the so-called absorbing of 5 per cent of the tariff hike by the Distcoms is merely postponing this hike for the future.

COST OF BUYING AND SELLING POWER

While a huge regulatory asset has been built up, which will need to be paid for by the consumers in the future, there are two other issues, which are worrying for the health of the Delhi power utilities, particularly Delhi Transco, the government owned transmission utility. Transco is the lynch pin of the Delhi power sector as its purchase of bulk power and sale to the Distcoms is what keeps the Distcoms running. The government had agreed to give a support of Rs 3,450 crore for the privatisation scheme. This was done as a loan to Transco to keep it from passing its full Bulk Supply Purchase price to the private Distcoms. Thus, while it was paying a price of Rs.2.21 (FY 2002) to 2.13 (FY 2004), it was charging a much lower price to the Distcoms, the shortfall being met from this loan. The question now is what happens to the repayment of this loan. If the Delhi consumers have to pay for this loan from next year, then the tariffs would have to rise even more steeply. The second is that apart from this Rs 3,450 crore, the other existing loans of the Distcoms, Transco and the generating companies amount to about Rs 1,980 crore. There was a moratorium on these loans for four years. From next year, this loan would also have to be considered while calculating the tariffs.  If we add these two items to the regulatory assets that DERC has already created, the Delhi citizens are looking at a mind-boggling tariff hike. Of course, given this year’s experience and the anger of Delhi citizens, it is quite on the cards that the loans would be held in abeyance, at least in the near future. This brings up the question of erstwhile DVB. If we look at the record of DVB, we would see that the major reason for the financial sickness of DVB was that the interest charges on its loan at the time of its privatisation was a whopping Rs 1,000 crore; without these interest charges, the net revenue deficit was only about Rs 250 crore. It appears that even without these interest charges, the revenue deficit of the successor companies are of the order of Rs 1,000 crore per year (adding the support of Rs 3450 crore with the regulatory assets of Rs 548 crore created by DERC), even though the tariffs have been raised substantially in these years and the bulk supply price for power has actually come down.

Before we end this article, it is worthwhile to see what is the bulk supply price that each of the Distcoms pay to Transco. As will be seen from the table below, the Delhi Transco sells power at costs or below costs to the Distcoms- it buys power at Rs 2.13 per unit and sells it an average price of Rs 2.07 to the Distcoms. By the policy directive given by Delhi government, DERC has to maintain a uniform rate of power in Delhi and therefore each of the Distcoms pay a different rate of power to Transco based on their ability to pay. Against this price at which the Distcoms purchase power, what is the amount that they charge the consumer? Table 3 shows the how much the consumers pay against the buying price of the Distcoms. The figures speak for themselves; the Delhi consumers are paying 211 per cent of the average buying price of the Distcoms. This is the magic of privatisation of Delhi power utilities.