Moronic New Electricity Tariffs

By Kumar David -April 28, 2013 |

Prof Kumar David

The new tariff structure, introduced with effect from 20 April I believe, has been designed by a bunch of morons. CEB engineers, when asked why the university need embarrass itself by awarding degrees to morons, just pass the buck and say the government and the IMF forced them to introduce the MTS (Moronic Tariff Scheme). Well, I won’t put it past the government to make a monumental ass of itself, but even the IMF! I am surprised. Unless the Fund wishes to change its middle name from Monetary to Moron, its Colombo office had better issue a statement denying responsibility for the MTS structure. I am referring to the structural design of the tariff scheme per se, not the separate issue of raising electricity prices; the two are entirely separable.

First let me note that block wise tariffs, of non-moronic design, are common all over the world and in Lanka from as long ago as I can remember. First consumption is divided into slabs. Pay Rs A per unit (kWh) for the first slab (for example 30 units per month); consume more, then pay Rs B for each additional unit. Usually B is more pricy than A; that is higher usage is charged as at a higher rate. Say this is up to 60 units per month. Consume even more, say up to 90 units, and pay at an even higher rate Rs C; and so on. For example if A=5 and B=10, consumption of 30 units in a month incurs a charge of 150, and 140 (=130+10) if consumption is 31. Whatever the utility’s revenue requirement, suitable slabs and slab prices can be designed (an infinite variety of combinations is possible).

Let us now suffer an attack of distemper that deranges our minds. Say we discard the previous scheme and replace it by a Moronic Scheme like the CEB (or PUC, or GoSL, or IMF, or whoever escaped from the asylum) has just implemented. Let us say if you consume up to 30 units per month you pay Rs 5 per unit as before, but dare you consume 31 units, you will be compelled to pay Rs 10 per unit for your entire consumption. Hence if you consume 30 units you pay Rs 150 as before, but if you consume 31 units you pay Rs 310 – that is Rs 10 per unit for all 31 units. Hence the 31-st unit, in effect, appears to cost you Rs 160, not Rs 10. To use a bit of jargon, the marginal cost of the 31-st unit is Rs 160. Generically, this is the structure of the Moronic scheme CEB-PUC-GoSL-IMF inflicted on the dazed citizens of Lanka at midnight 19-20 April.

Moronic marginal tariffs

You don’t believe me? You think I’ve been drinking, again, with my neighbour? OK, let me prove it. The PUC put out a “Consultation Document on Proposed Electricity Tariff Revision for 2013” about two months ago. Table 11 contains the new domestic tariff scheme; it is headed by the moronic declaration “(T)ariffs . . will be based on progressive blocks; where monthly consumption falls within a certain range (block), the relevant tariffs for that range will be applicable for the entire monthly consumption”.  There it is in plain black and white!

I have worked through the nitty-gritty of the scheme and can share the following horror stories with you. Another fraud called the Fuel Adjustment Charge which has been slipped in has also been included in the calculations. I have also added the monthly fixed charge. Hence the numbers below refer to any household’s total monthly domestic electricity bill.

Consume 30 units, the bill is Rs 217.50, but consume 31 and it is Rs 311.10; the effective price of the 31-st unit is Rs 93.60.

Consume 60 units, the bill is Rs 546, but consume 61 and it is Rs 815.90; the effective price of the 61-st unit is Rs 296.90.

Consume 90 units, the bill is Rs 1161, but consume 91 and it is Rs 2226; the effective price of the 91-st unit is Rs 1065. (You want to go get a glass of water before continuing?)

Consume 120 units, the bill is Rs 2835, but consume 121 and it is Rs 3703; the effective price of the 121-st unit is Rs 868.

Consume 180 units the bill is Rs 5355 but consume 181 and it is Rs 6396.60; the effective price of the 121-st unit is Rs 1041.60.

Consume 210 units, the bill is Rs 7371, but consume 211 and it is Rs 7995.40; the effective price of the 211-th unit is Rs 624.40.

Consume 300 units, the bill is Rs 11235, but consume 301 and it is Rs 13799.80; the effective price of the 301-st unit – hold on to something – is Rs 2564.80 for just that one extra kWh! Jesus, Mary and Joseph have mercy on you if you accidentally leave that lamp in the shrine room on overnight and consumption creeps up from 300 to 301!

There is time to roll back this lunacy; the first bills may not have gone out to consumers yet. Only massive public protests can reverse it.

Other subterfuges of the PUC

Other aspects of the PUC document are also decidedly dicey.

Fraudulent use of FAC: A Fuel Adjustment Charge is used in some countries to compensate for global fuel price fluctuations. If gas, coal or oil prices rise above a benchmark, FAC kicks-in and the charge rises a few percent. If fuel price is below this norm, there is no adjustment; and if it falls below a floor level consumers get a rebate. The fraud that the PUC has perpetrated is nothing like this. PUC simply multiplies your bill (other than the fixed charge) by 1.4 – that’s it, QED! It is nothing but slight of hand, a fraudulent scheme to raise your Moron Tariff by a further 40% (25% and 35% if you consume below 30 units and 60 units, respectively). This is a morally indefensible. The Government and the IMF (and I daresay the PUC and the CEB) want to hide that they are raising tariffs by a large amount. Hence they first set a bogus tariff, and then they add another 40%, pretending that it is like the non-fraudulent practice used elsewhere to link to global fuel prices.

To move on, a consultation document should be clear, easy to understand and transparent; the PUC’s document is opaque, perhaps deliberately so. For example it uses three terms, ‘total generation cost’, ‘adjusted generation energy cost’ and ‘total energy cost’ without defining the differences as though these are universally known and accepted terms; sheer sloppiness, there are no such universal norms. Clear and precise definitions are essential.

To move on again. The “Adjusted total generation cost” (Rs 186 billion in line 1 of table 9) for 2013 has been pulled out of a hat. The “total energy cost” for the first-half of 2013 is Rs 85 billion (second table 4, third last line), and the “adjusted generation capacity payments” for the first-half can be found by adding the numbers for the six months at the bottom of the first table 4 (the presentation is so sloppy that there are two table 4s!) and it is nearly Rs 18 billion. The “total generation cost” for the second-half of 2013 is estimated at Rs 101 billion (table 6).

Now 85+18+101 is Rs 203 billion. I have no idea, and no explanation is given, where the 186 figure came from! Presumably there is an explanation, but my point is this. Why is all this not transparent in a so-called public consultation document? Let alone the poor public, not even power systems specialists can decipher it. Presumably soothsayers in Tirupathi Kovil and the International Moron Fund mandarins can.

Another entry that gets no explanation is in table 4 (first table 4) where there is an “adjusted capacity payment” of Rs 617 million for Mahaveli, Rs 210 million for Laxapana and Rs 202 million for “Other Hydro”. Mahaveli and Laxapana have long ago been paid-off, and in any case they were mostly gifts and grants, so where are these “capacity payments” (about Rs 13 billion annually) going? Some reserve fund? Fine, but let the public know. Or are these monies needed to pay-off capacity charges of private generators?

Waste, mismanagement and corruption

There is a public outcry against waste and mismanagement at the CEB. My personal view is that there is some, but the outcry is exaggerated. Most waste is probably contained within the Rs 29.7 billion allocated to distribution, which sector covers the running of numerous CEB area offices. Now, Rs 29.7 billion to distribute 10.95 billion kWh (Rs2.71 or 2 US cents per kWh) is not low, but it is not excessive either.

Another Rs 30 to 40 billion (hard to be precise since the PUC document is opaque) is set aside for capacity costs (that is, interest and servicing payments on past capital expenditure). This seems high to me, but since as mentioned previously, it includes about Rs 13 billion allocated to hydro plant, and hopefully deposited in a reserve fund, it is not too bad.

Big time corruption, that is massive kick-backs to political leaders and CEB big-shots in the past, is concealed under the rubric of capacity charges, that is, capital servicing costs. Past loot is sealed in with overpriced capital stock, and future generations saddled with the consequent interest payment and loan repayment.

This Moronic Tariff will promote rampant corrupt collusion between meter readers and householders. Shift one or two units from this month to next month, if a slab boundary has been crossed, and thousands of rupees can be saved and shared. Another, perfectly legal method is to partition and reregister properties (annexes, upstairs and downstairs, a partitioned space) as two separate metered premises. The two bills, added together, will be thousands of rupees lower than a joint single premise bill, even at moderate consumption levels.

Social equity

The increases in costs falls very unequally on different sectors; CEB forecast 2013 revenue from the domestic sector has gone up 68%, the general purpose sector 8% and industrial sector 11% – using the sector revenue that the previous tariff would garner as the base in calculating percentages. The best-off is the religious sector (what I call opium-of-the-masses push points). There has been no increase in the revenue collected from this sector, and the charge at which electricity is supplied to it is less than one-third the cost of supply. The cost of this subsidy is Rs 955 million per annum according to the PUC. Time to get ordained I think; but will any sacred order accept me?