In its petition for the third control period, for Reliance Infrastructure Ltd.-Distribution Business (RInfra-D) has claimed aggregate revenue requirement, which increases from Rs. 7227 crore in 2016-17 to Rs. 8083 crore in 2019-20. This implies a revenue gap of Rs. 1326 crore along with unrecovered regulatory asset of Rs. 3257 crore.  These amounts would be recovered over the next four years. This is without accounting for fuel cost adjustments and any other costs arising out of litigation or other such factors. RInfra-D’s average cost of supply is already one of the highest in the country, even in comparison to other similar urban city areas.

The operationalization of parallel licensees in Mumbai is a unique experiment in the Indian electricity sector. It set high expectations of increasing efficiency and prudent expenditures.  However, nothing of the subsequent Mumbai experience met these expectations. In fact, as this submission highlights, things seem to have moved from bad to worse.  Seven years since the experiment, RInfra-D has an unrecovered revenue gap of Rs. 4583 crore (including the regulatory asset), which is close to 65% of its ARR for FY 2016-17, and it continues to purchase around 20% of its power from short-term sources.

This submission brings out the key issues in planning and regulation that continue to remain unaddressed.  It argues that so long as the regulator fails to ensure proper power purchase planning and continues to assure full recovery (with carrying cost!) for all expenses claimed by the licensees; the consumers will continue to bear the burden of very high tariffs, in spite of competition and in spite of technical and commercial losses being low.  

This also provides an important lesson for the sector’s policy makers who often emphasize on reduction in AT&C losses as the means for improving financial health of distribution companies.  The Mumbai experience, however clearly shows that failure in power purchase planning can turn even a low distribution loss business into a financially unviable one.

Here is a link to our submission in case of Tata Power Company Limited – Distribution, which is the other competing licensee in the Mumbai area. Past submission regarding issues pertaining to Mumbai power sector can be downloaded from here.