This briefing note analyses the recovery of fixed costs through demand/fixed charges, compares the average fixed costs incurred with the fixed charges levied for select consumer categories, and finally compares the increase in the monthly billing rate of select consumer categories upon an increase in the fixed charges.
In none of the years from FY 2011-12 up until FY 2018-19 was TANGEDCO able to recover its Aggregate Revenue Requirement (ARR). One of the reasons is the under-recovery of fixed costs through fixed/demand charges levied.
TANGEDCO was unable to recover its fixed costs through demand/fixed charges since FY 2011-2012 since the demand/fixed charges component in the tariff schedule does not represent the actual fixed costs incurred. Since the fixed costs are under-recovered, there is a shortfall in meeting the ARR.
A rationalisation of the demand/fixed charges levied across all consumer categories would ensure the complete recovery of all fixed costs incurred and equal distribution of these costs. This entails an increase in demand/fixed charges for all LT consumers. Whereas the demand charges for all HT consumers would be lowered. Such a rationalisation of the demand/fixed charges would result in completely recovering the net ARR.
The benefits of recovering fixed costs through demand/fixed charges include the following:
- Reducing the need for tariff cross-subsidies;
- Reduction in TANGEDCO’s revenue gap and higher recovery of the net ARR;
- Reduce the migration of HT consumers to other states with more attractive tariff schedules;
- De-risking of energy demand changes that result in lower energy off-take from sources with fixed capacity booking costs.