Non-remunerative Tariff Structure and Subsidies

Unviable tariffs additional weaken the condition of the distribution utilities, and particularly the State Electricity Boards. By the power to fix tariffs is vested along with the utilities, in practice the tariff determination has all along been completed through the State Governments invariably along with political/ populist/ electoral considerations. There is political interference in setting of tariffs those results within substantial cross subsidization in retail tariffs amongst several consumer categories.

The tariff set through the government is not sufficient to meet the SEBs' expenses. The industrial/commercial consumers have subsidized and are still subsidizing a large section of the agricultural and domestic consumers. This leads to a skewed tariff structure that required to be rationalized through an independent regulatory body.

Because the electricity pricing in, particularly, the domestic and agricultural sectors, has been done on 'pragmatic' considerations rather than on a realistic basis, there has been scant regard for proper use of electricity amongst the beneficiaries. Proper and efficient utilization of electricity needs to be given the attention it deserves.

The poor financial position of the State Governments has not permitted them to give adequate subsidies to the SEBs to compensate for the retail tariffs for agricultural and domestic consumers set at low levels. The cross-subsidies from the organizations and the commercial consumers have already reached unsustainable levels in most states. That has led to considerable financial losses to the SEBs and erosion of their credit- worthiness. Conclusion, the needed capacity additions to the generation and the T&D network to cater to the economic growth could not be made leading to considerable deterioration in the quality and reliability of supply. This has also impacted consumer satisfaction.