New Delhi [India], February 24 : Financial reforms and clear, transparent tariff policies are essential for the long-term sustainability of power distribution companies (DISCOMs), the Central Electricity Authority Chairperson Ghanshyam Prasad said on Tuesday.
According to Prasad, key priorities include automatically passing fuel cost changes to consumers, requiring DISCOMs to sell surplus electricity on power exchanges, and speeding up the tariff-setting process.
"If you really want to reduce the cost of generation and cost of procurement, some of the rules which we had already brought in are still not being practised," Prasad said while addressing the 4th DISCOM Conclave themed "Creating Next Gen Discoms: Financially Strong and Digitally Smart".
He referred to the Fuel and Power Purchase Cost Adjustment (FPPCA) mechanism brought in during the early 2020s, saying it was designed to enable automatic tariff adjustment in case of changes in fuel or power purchase costs
"The rule very clearly specified that in case there is any change in the fuel or in the power purchase cost, you start doing it. The formula is already given. It has to be reconciled in a given period of time. This was supposed to be done on a monthly basis," he said, adding that regulators were meant to carry out only the reconciliation.
Prasad said that the timely implementation of such mechanisms would allow DISCOMs to recover costs quickly and improve their financial position.
He also highlighted the mandatory provision requiring surplus power to be sold on power exchanges, noting that proceeds from such sales are meant to first offset fixed costs before other calculations are made.
"Some of the DISCOMs, particularly Gujarat, have started doing it and they have started saving a few lakhs of rupees every day," he said.
On improving liquidity in the power value chain, Prasad pointed to the growing adoption of prepaid smart meters, citing Bihar as an example where nearly one crore smart meters are operational in prepaid mode.
"What is the advantage that they have got is both the DISCOMs have almost turned around," he said, adding that at present only one or two features of smart meters were being used, largely to improve cash flows.
He suggested that a stronger prepayment culture across the value chain could ease systemic stress.
"If the DISCOM starts paying prepayment to the generating companies and transmission utilities, the entire value chain will get relieved," he said, noting that payments are now being made within five days of billing and could become even faster.
Prasad also flagged delays in tariff determination and called for greater transparency and digitisation in the regulatory process.
"Can the entire system not be streamlined as part of a very transparent strategy? In the age of AI and digital transformation, we need to have this transformation process of regulatory aspects besides the DISCOMs so that things come in time," he said.
He said financial discipline, transparent tariff processes and effective implementation of existing regulatory provisions would be essential for building financially strong distribution utilities.
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