Madras Chamber of Commerce & Industry and India Energy Forum Session on Rationalisation of Electricity Tariffs Anand Madhavan Head – Energy & Urban Infrastructure Chennai 5 Sep 2014

© IMaCS 2014 Printed 11-May-15 Page 2 Key challenges to financial sustainability  Persistent gaps between Average Cost of Supply (ACS) and Average Revenue Realisation (ARR).  Wide band of Cross Subsidies beyond limits stipulated in the National Tariff Policy  High HT tariffs are making Industry (particularly SMEs) vulnerable and render them non-competitive; even as there is continued reluctance to fix / rationalise tariffs in other segments

© IMaCS 2014 Printed 11-May-15 Page 3 Trend in ACS Vs ARR gap – Tamil Nadu Key related provisions of Financial Restructuring Plan (FRP) Regular redetermination of tariff to cover cost of service OR State Govt to fund the gap Gradual elimination of gap between ACS and ARR Operational turnaround by

© IMaCS 2014 Printed 11-May-15 Page 4 Category wise ARR Vs ACS – Tamil Nadu

© IMaCS 2014 Printed 11-May-15 Page 5 Residential Tariffs..1 All sub-categories are subsidized 1.CC I - Consumers who consume from 51 units to 100 units per month 2.CC II - Consumers who consume from 101 units to 250 units per month 3.CC III - Consumers who consume 251 units and above per month CC ICC IICC III Average Cost of Service approved by TNERC is 658 paise per kWh for FY

© IMaCS 2014 Printed 11-May-15 Page 6 Residential Tariffs..2 High consumption category ~ Rs crore  Estimated under-recovery from domestic consumers vis-à-vis Avg. Cost to Serve ~ Rs. 6,000 Crore  Subsidy provided by GoTN to the domestic category was Rs 1,888 Crore Estimated Consumer sub-segment wise underpayment (Rs Crore)

© IMaCS 2014 Printed 11-May-15 Page 7 Tariff v/s ACOS (Rs 5.24/kWh) Several categories have tariffs outside the +/- 20% band, actual Source- TANGEDCO Tariff Order dated 20 June 2013 National Tariff Policy – Tariffs within ± 20% of Average Cost of Supply Category ABR (Rs. /kWh) ABR / ACOS (%) HT Industries % HT Railway Traction % HT Government Educational Institution etc % HT Pvt. Educational Institutes etc % HT Commercial & others % HT Lift Irrigations and Co- ops % HT Temporary % HT Categories % Category ABR (Rs. /kWh) ABR / ACOS (%) LT –Domestic3.4466% LT –Huts4.4385% LT -Bulk Supply4.0677% LT -Public Lighting and Water works % LT -Government Educational Institutions % LT -Pvt. Educational Institutions % LT - Places of Public Worship % LT-Cottage and Tiny Industries4.0277% LT –Powerloom % LT-Industries % LT Agriculture and Govt. Seeds farm2.6150% LT – Commercial and other % LT Temporary Supply % LT Categories4.2180%

© IMaCS 2014 Printed 11-May-15 Page 8 Steep increase in subsidies Rs Cr  Subsidy provided to TANGEDCO was 5.1% of GoTN revenue in FY 2013  Subsidy > 20% of gross fiscal deficit of GoTN in year 2013 and 2014 (estimated)

© IMaCS 2014 Printed 11-May-15 Page 9 Tariff order for estimated an expense of Rs 4.99 / kwH while actual expenses approved later is about Rs 5.58 / kWh Category Sales (MU) Net Aggregate Revenue requirement (Rs. Cr) Revenue from existing tariff (Rs. Cr) Revenue gap at existing tariff (Rs. Cr) Net Gap from tariff including carrying cost (Rs. Cr) Addnl. revenue for FY tariff hike (Rs. Cr) Revenue from proposed tariff for FY (Rs. Cr) Source: Tariff Order for FY dated 30 March 2012

© IMaCS 2014 Printed 11-May-15 Page 10 Tariff order for FY 14 estimated an expense of Rs 5.24 / kwH; Actual expenses to be higher Tariff Order for FY dated 20 June 2013 Category Revised Sales (MU) Net Aggregate Revenue requirement (Rs. Cr) Revenue from existing tariff (Rs. Cr) Revenue gap at existing tariff (Rs. Cr) Cum. Revenue Gap for FY Addnl. Revenue for FY tariff hike (Rs. Cr)--964 Revenue from proposed tariff for FY (Rs. Cr) Source: Tariff Order for FY dated 20 June 2013

© IMaCS 2014 Printed 11-May-15 Page 11 As a result, TANGEDCO continues to sustain operating losses Annual losses of the utility (Rs Crore)

© IMaCS 2014 Printed 11-May-15 Page 12 Bridging gaps in cost recovery central to TN’s Energy security  Align tariffs in line with National Tariff Policy Bridging ACS-ARR gaps; eliminate phase-out ‘non-merit’ subsidies Align cross subsidies to a +/- 20% subsidy band Regular Periodic increases to avoid tariff shocks  Address power procurement and efficiency Appropriate mix of Case I / Case II and own augmentation Utility-level Demand Side Management initiatives  Invest in Smart Grids and fix transmission, distribution bottlenecks Address evacuation bottlenecks Sharper reduction in AT&C losses Segregated feeders for Agriculture

© IMaCS 2014 Printed 11-May-15 Page 13 Thank You

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