Karnataka Power Crisis: Need for new thinking

As far as one can remember, Karnataka has been facing power crisis for more than 25 years. Brown outs and black outs have become regular features of the energy scenario whether reservoirs are full or not. Power crisis has become a perennial phenomenon — a State which had power surplus one time has been a power deficit State since a long time. It is likely to remain so unless some basic but politically difficult reforms are implemented as described later, says Dr. Bhamy V. Shenoy, Convenor of Mysore Grahakara Parishat (MGP), in this article which will be published in two parts .—Ed.

Every new Energy Minister irrespective of party affiliation soon after assuming the portfolio makes tall promises to solve power crisis within a short time. As we know there has been no improvement in power scenario.

What is the current demand and supply of electricity in Karnataka?

On a realistic basis, no government agency [Ministry of Energy or Karnataka Energy Regulatory Agency, or power sector companies like KPTCL, KPCL, five Energy Supply Companies (ESCOMs), or NGOs] has any reliable statistics on the supply and demand for power in Karnataka based on any scientific studies. According to the Energy Minister, Karnataka’s electricity demand is supposed to be about 130 million units per day while generating capacity is about 110 million units. Of cou-rse this demand changes with the season and so also the supply. It can be safely assumed that on energy demand basis the deficit is at least 15% or more and based on peak demand deficit for power is more than 18%. In short, Karnataka is unable to generate power to meet either average or peak demand of State.

What is the effect of power crisis? Who are the losers and winners from the power crisis?

It is difficult to estimate with any degree of accuracy the loss to GNP as a result of the power crisis. Still it is a safe bet that actual GNP is at least 15% less than what it would have been if we had a better power situation. Every one including those who have inverters and private generator sets is a loser. Generator sets besides creating noise pollution are also a drain on the foreign exchange by adding to import of crude oil. Especially in this age of internet where one needs continuous supply of electricity for operating many appliances, loss of quality and reliable power will have great impact on productivity of every worker.

Still there are some few winners. Those who sell inverters and generators, oil traders selling diesel, petrol and kerosene to operate these generators are clear winners. Politicians are also winners in unintended ways. They can use their influence to give connection to favoured people even when they do not comply with all the regulations, force ESCOMS in giving unmetered connections, prevent ESCOM employees from disconnecting those who do not pay bills, etc.

Who is in charge of power sector in Karnataka today?

Actually no authority or company can be held accountable for meeting the power needs of Karnataka today. Earlier there was just one company, Karna-taka Electricity Board (KEB) which could have been held accountable for meeting the power needs of the State. On advise of the World Bank, KEB was unbundled into generation, transmission and distribution companies. On paper such an unbundling sounds nice. But in practice it has been a disaster so far with no one having the overall responsibility to plan for the future.

There are various independent power generating companies along with the government owned Karnataka Power Company Ltd (KPCL) and Visweswa-raya Vidyut Nigam Ltd (VVNL). For power transmission there is KPTCL and and for distribution and supply of power we have five energy supply companies — Bangalore ESCOM, Mangalore ESCOM, Chamundeswari ESCOM, Hubli ESCOM and Gulbarga ESCOM.

Essentially it is the State- owned companies which are responsible for power sector in Karnataka and independent power producers (IPPs) have a minor role. In addition since 1999, there is Karnataka Regulatory Energy Commission which is in charge of monitoring the operations of power sector companies and also approving any tariff changes. It has also the responsibility to ensure reliable supply of quality power by ensuring the profitable operations of ESCOMs. KERC was expec-ted to be a powerful body with high expectations. As explained later this has remained on paper.

What are the root causes for power crisis?

There are several reasons for the age old power crisis. The first and foremost is the competitive politics of supplying power below the cost of production to create vote banks. Every one knows that if a shop keeper continues to sell his products below the cost of goods, he would go out of business. This is a basic lesson in economics. But our political leaders who are short term oriented are naturally interested in maximizing their gains and not interested in the long term interests of the State.

The second reason is the political interference in the management of power sector companies.

The third reason is the inefficient operations of all the power sector companies. These are not operated along commercial lines. If they were private stockholder owned companies they would have been closed down a long time back. Their management is not held accountable for supplying quality and reliable power to the consumers.

Finally the apathy on the part of power sector consumers is also responsible for the current power crisis. In a functioning democracy, voters should hold the elected representatives responsible and vote them out.

Those consumers who are rich have already installed private generator sets and are not affected by the power crisis. Even most of the middle class have installed inverters. Thus the relatively well off section of the society has overcome the problem whereas the majority continue to suffer in silence. Earlier years there used to be some protest. Today even that little protest is absent and consumers have accepted the blackout and brownout as their fate. They do not realise that in the 21st century of “shining India” they should get 24 X 7 electricity supply.

KERC has failed miserably in its mandates and has become just another unproductive and inefficient government agency.

Why are transmission and distribution costs are so high?

Transmission costs allowed by KERC is about 4.00% while distribution cost varies between as low as 14% for MESCOM to as high as 26% for GESCOM with an average of 21.5%.

Actually the reason for such a high distribution losses are theft. Actually it could be even higher since consumption in agriculture is just an estimate. Many farmers either do not have meters or their meters are not working. Even after 10 years of the existence of KERC, they have not been able to force the ESCOMs to install meters at the premises of all consumers.

In addition there is also the problem of collecting billed amounts. While collection rates are high for BESCOM and MESCOM they are as low as 85% for some of the other ESCOMS showing how inefficient they are. By international standard T & D losses should be less than 10%. If ESCOMs are restructured to have competent managements, then it should be possible to reduce T & D losses to international standards.

What are the economics of generating and supplying power?

In Karnataka, total generating capacity is about 9061 MW with Hydro generating capacity of 3536 MW, Thermal of 2207 MW, Renewables of 1784 MW and Central generating capacity (thermal and nuclear) of 1534 MW. The cost to generate power from hydro energy is about 55 paise per kwh since most are old and for new hydro it could be as much as Rs 2/kwh.

Thermal power costs about Rs 2.84 to 3.38 per kwh if it is from coal-based power plant. When thermal power is from diesel like in the case of Yelahanka it could be as high as Rs 10/kwh or more. Power from renewables would be about Rs 3.06 to Rs 4.47 kwh after subsidy. On an average, cost of power generation is about Rs 2.72 per kwh which is competitive with any country.

However, the average cost to the consumer is about Rs. 4.17 per kwh as approved by KERC with no cost to Bhagya Jyothi and Kutir Jyothi customers. Farmers have to pay as little as 40 paise/kwh while industrial customers are charged Rs. 4.30 per kwh. The cost to supply industrial consumers is considerably lower than farmers. Residential customers pay between Rs. 1.85/kwh to Rs. 4.70/kwh.

Economic theory suggests that unless consumers are charged at least average cost, there will be inefficient use of the commodity. One can even justify charging average incremental cost of generating power which would put it at least above Rs 3.50 to Rs. 4 per kwh.

The difference between the average tariff charged to consumers of Rs. 4.17 per kwh and generation cost of Rs. 2.72/kwh is to pay for the operating expenses of power sector companies, transmission costs (25 paise/kwh), distribution costs and above all transmission and distribution losses (mostly theft and uncollectibles). Actually the profit allowed for power sector companies to replace their assets and to invest in new infrastructure is not enough. This is one of the main reasons for the current energy crisis. In short, much to be desired in design of tariff structure by KERC. Though by law cross subsidy should be avoided, KERC is continuing the old policy of cross subsidy.

How can demand side management help solve the cur-rent crisis?

Certainly the demand side management like the use of CFL, greater use of efficient electric equipment, more efficient use of pumps by farmers, replacing electric water heaters with solar water heaters etc. can reduce power demand. There are hundred and one ways consumers will be motivated to reduce their power demand provided they have to pay the appropriate price for their power supply. When the farmers are promised 'free' power or low cost power or residential consumers are promised low cost power, the government is taking all the incentives of saving power.

No doubt one needs to educate on the use of new technology like LED bulbs or CFLs to change over from incandescent bulbs. But one sure strategy which works all over the world to reduce demand for any product is when consumers have to pay the right price without any subsidy. In short, the government needs to allow the market to operate with the least amount of political interference while taking care to help the vulnerable part of the society. Today by keeping the prices low, it is the rich who are getting the benefit and poor have to pay for this lopsided government policy.

As per the latest KERC order, the government has to pay as much as Rs. 3,480 crores as subsidy to support its policy of supporting the poor and also the irrational pricing. The subsidy amount is more than what Kar-nataka spends in health and rural development. Can this be justified? If we do not send the right pricing signal, then demand side just does not work based simply on sloganeering. The same is also true in the case of promoting renewable energy sources. Wind generation will become economical if the externality cost associated with coal is imposed on coal power plants. Instead of giving subsidy to wind power generation, if we impose coal taxes, then wind energy will be automatically accepted by investors.

What should be done to avoid future power crisis?

The concept of an Energy Regulatory Commission was first suggested by MGP as early as 1990, so also the concept of breaking KEB into four or five autonomously mana-ged companies so as to keep political interference as little as possible.

However, even after the formation of KERC, political interference has not been minimal. The government has the responsibility to set the right kind of energy policy. It should also help the most vulnerable section of society. But managing the power sector should be left to those who are competent to do so and there should be no interference with the work of regulatory body.

KERC should be allowed to function the way it was planned. If the members chosen cannot function as per expectation, they should be removed. Members of KERC should be held accountable after giving them a free hand to operate as per the law.

All the power sector companies (KPCL, KPTCL and five ESCOMs) should be restructured so that they operate as commercial entities and not as glorified departments of the Ministry of Energy. Today they have neither functioning boards nor competent and honest managers. This should be tackled on a war footing.

The strategy of appointing ever-revolving IAS officers to manage these companies is not a good strategy. Managing an operating company is different than administering a government department. Managers to run these companies should be groomed from within and competent people in these companies should be given extensive training to manage the companies. Till then, managers from private sector should be recruited to operate these companies.

In short, the steps needed to avoid future power crisis are basic and simple. However, implementing them will not be that simple. Politicians and IAS bureaucracy are unlikely to give up their fiefdom unless the public demands it. Karnataka can be a shining example to the rest of India in gaining freedom from power crisis if we can take the difficult step of keeping politics away.