Shocked? Let's analyse the bill

MUMBAI: Thane resident Arun Khandekar was shocked to see the electricity bill delivered on a sultry afternoon last week. The retired gentleman was bewildered by a sudden hike of Rs 150. And load shedding everdyday adds to his discomfort in the October heat. “But a power-cut is better than these unexplained, escalating bills,” he says.

It doesn’t help that Mr Khandekar failed to make sense of the elements in the bill. To find answers for Mr Khandekar and other electricity consumers, ET met various electricity distributors seeking answers to some fundamental questions — What is a fixed charge? How are energy charges calculated? What is the fuel adjustment charge? Who gets the revenue from tax on sale and electricity duty?

A Maharashtra Electricity Regulatory Commission (MERC) order had recently allowed collection of additional electricity charges (AEC). What is this and why should consumers pay this amount? The answers could help readers make sense of their power bills.

The energy charge is the primary component of the bill. It includes the cost of fuel, generation and transmission, distribution charges and the profit of the generators. In Maharashtra, the MERC fixes this charge.

Power suppliers calculate the energy charge depending on the various slabs at which the consumers are charged. For example, if a consumer of Reliance Energy (REL) is in the LF1 category (the lowest category with L and F standing for lights and fans) and consumes 420 units per month, then the energy charge for the first 100 units will be Rs 1.60 a unit. For the next 200 units, he will pay Rs 3.60 a unit. The remaining 120 units will be charged at Rs 5.75 a unit.

He also has to pay a fixed charge, which is like a service charge. It differs according to the consumption. Commercial and non-residential consumers, who fall in the LF2 category, consume more and hence have to shell out a higher fixed charge.

MERC revises the power tariff structure whenever the cost of fuel such as coal and natural gas fluctuates in the international market. This charge, called the fuel adjustment charge (FAC), is added to the energy charge. The FAC changes every month depending on fuel prices.

For example, high international crude oil prices had led to an increase in the FAC for nearly a year. However, crude prices have come down to $58 a barrel from the highs of $75, and this will have an impact on the FAC.

The electricity suppliers also collect duty and tax on sale of electricity, on behalf of the government of Maharashtra. Even if a consumer doesn’t pay his monthly bill, the supplier has to pay the tax. For residential consumers, the tax is fixed at 15 paise per unit, while industrial consumers pay 19 paise per unit.

Industrial and commercial consumers also pay a duty of 6% and 13%, respectively. But the residential consumer, who gets subsidised power, pays a 12% duty. The duty is calculated on the total amount, which includes energy charge, fixed charge and the FAC.

Now let us see how a power company makes profits. The MERC has capped profits for a company in such a way that it gets 16% of its profit from distribution and 14% from generation and transmission. Most companies lose revenue due to transmission losses. “If transmission losses are reduced, the power company can obviously make a higher profit,” an industry source said.

For REL, the distribution cost is Rs 1.08 per unit, while its is Rs 1.48 a unit for BEST. The MSEB distribution arm, Mahadiscom, loses 36% of power during distribution.

Mumbai has about 38 lakh electricity consumers. Reliance Energy caters to about 25 lakh consumers, while BEST distributes electricity to 9.5 lakh. Mahavitaran has a customer base of about two lakh, while the bulk distributor, Tata Power Company, provides power to about 25,000 consumers.

According to a recent MERC order, REL consumers will have to pay an additional electricity charge. This charge, to be levied over six months, was allowed because REL had given a rebate to consumers during 1997-2003. MERC allowed the company to recover the Rs 350 crore given as rebate. But the company is submitting a review petition to MERC to shield the low-end consumers from a tariff hike.

So, in Mr Khandekar’s case in Thane, the additional Rs 150 are levied on a combination of higher fuel adjustment charge, duties and taxes. Little comfort though, that he now understands what he is paying for.