KSEB junks socialist welfare model to recover investment in full

Kerala State Electricity Board Limited has set in motion what can be called "reverse welfarism" in its billing system. Gone are the days when public utilities like the KSEB were seen as all-suffering mother-like entities ready to absorb unlimited losses for the sake of the middle class.

Unmanageable debts have made this public service approach unsustainable. KSEB has also benched its 'Robin Hood' model where industrial consumers are subjected to 'loot tax' so that poor and middle income families can sleep easy.

The new game plan is to incrementally bridge the difference between the power bills of industrial consumers and 'poor and middle-income' households.

Power bills of households and industrial units will be brought closer to the average cost of supply (ACoS), which is the cost incurred by KSEB to generate/purchase power, transmit and then distribute a unit of electricity to its end point (households and business and industrial units and also common utilities like street lights).

Objective: 100% recovery of investment.

Formula: Bills should neither be lower or more than 20% of the ACoS. As KSEB moves towards this goal, there will be less subsidy for households and no excessive billing for industries.

Bridging the rich-poor divide
This is evident in the latest tariff revision. While there was an increase of 3.54% for domestic consumers, it was mostly below 2% for big industries and for small and medium businesses.

For big industries -- High Tension I -- Industrial (A), HT Industrial (B), HT - II - General - the increase was 1.18%, 1.60% and 1.10%respectively.

For Low Tension - IV (A) Industry (manufacturing units, grinding mills, ice factories, workshops ice factories, rubber smoke houses, power laundries and diamond-cutting units) only 2.31%.

For LT-IV(B) IT and IT-enabled services like computer consultancies and DTP centres, the increase is only 2.25%. For LT-VI(F) - computer training institutes, film studios, offices of advocates, printing press), the increase is 1.80%. For LT-VI-General (private health care institutions including hospitals and scanning centres), it is only 1.70%.

For LT- VII (A) - Commercial (hotels and restaurants, house boats, bakeries, automobile service stations, stock broking firms), it is 1.42%. For LT-VII Commercial (cinema theatres, multiplexes, auditoriums, indoor courts, turfs), it is 2.01%.

100% recovery
In 2022, Kerala State Electricity Regulatory Commission (KSERC) has fixed the ACoS for 2024-25 as Rs 7.30 per unit. For 2025-26, it is Rs 7.17. And for 2026-27, it is Rs 7.13.

With the tariffs in force before the latest revision, KSEB's earnings per unit was Rs 6.79. This meant the utility recaptured 93% of its investment. After the revision that has come into force from December 5, an average increase of 16 paise per unit, KSEB is expected to get back Rs 6.95 per unit. Meaning, it will now get back 95.2% of its investment.

In 2025-26, KSEB will find the going even better. For the next fiscal, the KSERC has approved an average increase of 12 paise per unit. KSEB is expected to recoup Rs 7.07 per unit. The ACoS fixed for 2025-26 is Rs 7.17. Meaning, the power utility will get back 98.6% of its investment. Had there been no hike, KSEB would have recovered only 94.56% of its investment.

And in 2026-27, for which the KSERC has ruled out any tariff hike, the KSEB will recover the same amount as in 2025-26: Rs 7.17 per unit. However, the ACoS for 2026-27 fiscal, thanks to the economy measures KSEB will have to mandatorily put in place, will come down to Rs 7.13 per unit.

So, even without a tariff hike in 2026-27, KSEB could get back nearly 100% (99.44%) of its investment.