Monday, April 22, 2013

Oral Presentation: Comments presented at the 2nd Public hearing for tariff revision for PUCSL Sri Lanka

Hasala Dharmawardena (MIEEE, MIET) 
Electrical Engineer
Member of IEEE Power and Energy Society
Honorable Chairman & Commissioners of the Public Utilities commission:
I am an electrical engineer with a keen interest in the energy sector. I have seen the Electricity Act being enacted, the PUCSL empowered and also participated at the last public hearing.
In such a setting I would like to present to you some points that I believe will help the Electricity Sector of our country.
The 2010  tariff revision was based on the "Consultation Paper On Setting Tariff for the period of 2011-2015". In fact this was the tariff setting policy formulated by the PUCSL to satisfy "General Policy Guidelines" set by the government.
The tariff was not revised by the PUCSL for 2012 and the decision to revise tariff for 2013, was taken earliest in March. It is evident that it was very hastily prepared and thus today we are looking at a Tariff Proposal which is incomplete, and which contradicts with the spirit of all the good work done by the PUCSL from 2010. The tariff structure has been turned upside down in such a drastic manner, that it is difficult to find any continuity.
The electricity sector needs stability and the investors need confidence in the Regulator. Therefore the Golden Rule for tariff revision is be to be consistent with the "Consultation Paper On Setting Tariff for the period of 2011-2015" issued under section 30  of the Sri Lanka Electricity Act 2009. Section 30 states that "Tariff shall be in accordance with the cost reflective methodology approved by the commission" .
This proposal is not in accordance to it and in my humble opinion should not be implemented at any cost.
Now let me take you to the key conflicts in the proposal.
1.       The 2011 proposal implemented a block tariff with very smooth tariff increase. However the new proposal by the utility is about implementing a flat tariff full of high peaks & low valley, sometimes reaching a gut wrenching value of 120%.
No doubt that the tariff should be increased but it should have been increased every six months, in a gentle, planned manner from 2011 to 2013, as per the PUCSL proposal, and consumers would have found it much more easily adaptable. This gives rise to the question as to why the PUCSL did not follow its own policy by not increasing the tariff in 2012?
2.       The utility tariff proposal is drastically opposite to the road map for tariff rebalancing in the period from 2011 to 2015 (Table 15) given by PUCSL in 2010.
3.       TOU tariff was to be made mandatory for all users, except domestic and religious in 2013 as per PUCSL plan. However as per the utility proposal GP1, HP-1,GV1,GV2,GV3 and IP-1 all are still without TOU.   
4.        In contrast to reducing the blocks for domestic consumers, in this proposal one new category of 300 units is added and total number of blocks increases by 1.
5.       In contrast to unifying all users except Domestic and religious in 2013, an Extra 210 Group is added to GP-1 and no unifying is proposed. No reactive power charge is added either. All subsidies to be addressed outside the tariff. However as per current proposal, General purpose consumers are surcharged a massive 15 billion rupees, while Industrial consumers are subsidized by 16 billion, in total negligence to the road map set by PUCSL.
This new proposal is not in harmony with the 2010 proposal and no plan for the future is given either.
Having such gigantic strategy reversals in tariff policy done in such a careless manner will corrode consumer confidence and affect the future of the power sector negatively is what I feel.

In the same consultation paper a very effective way by the utility, to become more transparent to the  customer through providing a cost breakdown tier-wise while also including the surcharge/subsidy in the bill, was proposed in Table 19 and 20. However after 2 and half years we are yet to see this implemented. Propose that PUCSL implement it immediately.

In the tariff proposal by Utility, we see a FAC which does not serve any purpose but to distort the real energy cost. Request the FAC to be made Null and corresponding value included in the energy cost.

Taking your attention to point 6 of the utility proposal, we can see that the subsidy analysis is incomplete. The assumption of taking the cost of supply as equal for all categories is not acceptable in my view. The analysis should be done using a methodology similar to the analysis done in the 2010 PUCSL consultation paper  section 5.1, Table 14.  

As per policy set in budget 2011, GV1,GV2,GV3 and religious  categories of customers got a rebate of 25% in the electricity bill, however those customers bill has not being increased at all, when the average increase is 27% for this proposal. Effectively this increases the rebate to 52%. This is deviant from the government guideline. Since anyways the electricity bill for these institutes are foot by the government, either directly or as a subsidy for the bill, propose that the PUCSL advise the government, to either give free electricity to them while government directly is charged for the bill by the utility, or else charge the institutes a fully cost reflective bill which too is ultimately paid by the government. This method is better since this forces them to prioritize expenses to optimize the limited budget.

In summary, consistent policy to be followed for tariff setting, FAC to be removed, subsidy to be re-analyzed, and rebate to be kept at 25% and not to be increased without government directive are my observations.
In my opinion I feel the PUCSL needs to give thought to the legitimate expectations of the people. Implementing this tariff proposal is a sure way of destroying it. I respectfully request the PUCSL to halt this revision and take more time and put more effort to develop a new tariff and  till it is implemented increase Fuel adjustment charge to counter the increased costs. This tariff will define the future of all Sri Lankans.

Though this public hearing was organized as per a legal requirement, it is evident that the members of the PUCSL have put forward their hearts and souls to make it a success. I thank the staff of the PUCSL,  from the bottom of my heart for this opportunity given to me. 

Presentation at: