Ahead of the State Budget for the financial year 2024 – 2025, the Karnataka Electricity Regulatory Commission (KERC) has written to the State government to consider an increased budgetary allocation for the free supply of power to irrigation pumpsets (of 10 HP and below).
The commission has placed this request to reduce the burden of cross subsidies on industrial and commercial consumers in the State by removing it, which would essentially result in reduced electricity tariff for these consumers.
A letter, written to the Additional Chief Secretary (ACS), Energy Department, explains that traditionally, tariff is fixed based on the paying capacity of consumers and hence, the tariff for IP sets as well as other domestic consumers is usually lower than that for industrial, commercial, and other high-consumption domestic consumers.
The Commission Determined Tariff (CDT), when it came to IP sets, so far was fixed considering the cross subsidies provided by industrial and commercial consumers.
“Fixation of tariff with cross subsidies essentially means the industrial and commercial consumers are subsidising the government to partially meet the cost of electricity being supplied to IP sets for free and for the free supply to domestic consumers up to 200 units,” the letter noted.
The KERC has also said that in addition to IP sets, the high-paying consumers were also cross subsidising for the Gruha Jyothi scheme.
Hence, the commission is also planning to remove the cross subsidy being provided for the free 200 units to the government by high-consumption domestic consumers. It also plans on increasing the tariff payable towards IP sets and free power for domestic consumers which would need increased subsidy allocation from government.
Cost increase
The KERC also noted that the electricity costs in the State have gone up owing to increased fuel and other operating costs. For instance, the average cost of the supply of one unit of sale of Bescom was just ₹5.04 in FY 2013 – 2114, whereas in FY 2023 – 2024, it rose by 91% to ₹9.62 per unit. The cost of power per unit sales also increased by 77%, from ₹4.36 per unit to ₹7.73 per unit, in 10 years.
Along with the hike in tariffs, the burden to also pay the cross subsidies has affected the growth of trade and industries in the State, the commission observed.
“The cross subsidy provided by industrial and commercial consumers came up to ₹5,680 crore in FY 2023-2024. This is why the industrial tariff is high in the State. As the tariff is high, they are going off grid to open access which is a loss to the electricity supply companies (escoms). That is why we want to remove it from FY 2024 – 2025. States like Andhra Pradesh do not have this cross subsidy system,” P. Ravikumar, Chairman, KERC, told The Hindu.
The commission says in the letter that without cross subsidy from industrial and commercial consumers, the total cost of power supplied to IP sets came up to ₹19,646 crore.
If an 8% increase in the cost of power supplied to IP sets is considered for the FY 2024 – 2025, then it is likely to cost the State government around ₹21,200 crore. Like this year, if the monsoon also fails in the upcoming FY, then the IP power supply cost for the government would be ₹29,500 crore and hence, the KERC has requested the government to increase the budgetary allocation.
ACS, Energy Department, Gaurav Gupta, when asked about the letter, said, “We will consider and discuss its recommendations and then the government will take whatever action is necessary.”
