Power quarterly adjustment: Record high

The biggest quarterly power tariff adjustment appears well on its way, as the regulator will be hearing 4QFY22 quarterly adjustment petition of the power distribution companies next week. Adjustments have been plenty of late, with the government caving in, on the latest monthly adjustment, announcing waiver for a large portion of domestic and agriculture consumers.

Currently, two quarterly tariff adjustments are in effect, lapsing at different times. The quarterly adjustment for 3QFY22 was low at Rs0.5/unit, as the under recovery for the period was close to Rs12 billion. Come 4QFY22, the underrecovery shots up to Rs94 billion. Granted that the amount maybe shaved by a couple of billion at best – but it will likely stay north of Rs90 billion, when the decision comes.

This is going to be, by far the highest quarterly tariff adjustment, both in terms of absolute amount and unit terms. This will translate into an impact of Rs2.85/unit based on 33 billion gross units at allowed transmission and distribution losses, if the mechanism to collect continues as it is, i.e., spread over three months.

Recall that previously, the QTA were recovered over a span of 12 months – a practice that was rightly changed to smoothen the payment flows in a timely manner.The adjustment is spearheaded by overruns in capacity payments at Rs55 billion – with nearly 60 percent of the total share of under recovery. This alone translates into an impact of Rs1.65/unit, on account of capacity payment under recovery.

The capacity payment under recovery has almost always been the leading factor, but 4QFY22 is bloated significantly as all indexed components grew appreciably during the quarter. Sharp currency depreciation and increase in inflation played a great part in inflating the capacity component of the tariff.

Another Rs0.93/unit is expected to be charged on account of impact of T&D losses alone, as the allowed T&D losses continue to be on the lower side. The incremental units on account of incentive package are netted off from the gross unit calculation for tariff adjustment. There is a high chance the government may opt to spread the impact over a longer period than the recently adopted practice of adjusting the quarterly tariffs in just three months. Either way, there is no end to upward tariff revisions in the near-term. Electricity bills will continue to send shockwaves, and the government may have to come up with a plan to fight it with a combination of spreading the impact and adequately funded subsidies, if need be.