Another quarter, another massive adjustment. At Rs2.75/unit approved in lieu of periodic adjustments for 2QFY24, the quarterly adjustment (QTA) is more than double the 1QFY24 QTA at Rs1.15/unit. The regulator has approved Rs85 billion to be collected between April and June of 2024, with the projected sales at 31 billion units.The QTA in the last five years has averaged Rs60 billion or Rs2.2/unit.

Despite a higher adjustment, electricity bills will be offering a little respite in 4QFY24 over the previous quarter of January-March – because the previous QTA expiring in March also has a component of 4QFY23 adjustment of Rs3.28/unit, that was spread over six months – taking the total QTA in effect to a record Rs4.97/unit.

This is of course assuming the monthly FCAs do not go haywire in May and June. That said, FCAs were already near a record high between January to March at Rs5.2/unit. The monthly adjustment to be collected in April 2024 is Rs5/unit and should stay around that number till the fiscal year-end. The government in the past has imposed surcharges out of nowhere, and that cannot be ruled out for the last quarter, but at least, so far there has not been an indication in that regard.

The respite though, still means 100 units in the unprotected category resulting in an effective tariff of Rs34/unit – only 60 percent higher than a year ago. The CPI reading may well show a month-on-month decline in electricity tariffs for April 2024 at anywhere between 10-15 percent – given the mysterious ways the PBS works.

The effective tariff comes with a caveat as it only reflects billing outside of K-Electric. The adjustments at KE have been higher in quantum in the recent past owing to pendency issues, and there is also an additional surcharge over the PHL surcharge for KE consumers, as the government randomly thought, late last year that it was required to collect an additional Rs25 billion from KE consumers over 12 months.

All said the 4QFY24 respite in lieu of 2QFY24 adjustments is just about the only thing looking up in terms of consumer end tariff in the near term. The total revenue requirement of discos for FY24 could well be north of Rs4 trillion, a colossal Rs800 billion (Rs7/unit) increase from the existing base tariff. Even if the regulator does not allow some of the costs sought in petitions by the discos – not more than Rs100-150 billion will have been shaved off the FY25 revenue requirement.

What will be even more critical is the generation mix that the CPPA envisages and seeks approval for – as the one currently in place is out of line to the point of ridicule. For context, the existing PPP is based on no more than 6 billion units of RLNG-based generation, when the actual generation in the past is way beyond 20 billion units and is also expected to hover around 25 billion units for FY24.

This is important because the monthly fuel charges adjustments throughout FY24 have wreaked havoc on consumer bills. The fact that monthly FCAs are decided and implemented with a lag in relation to actual consumption – also keeps consumers in the dark. A much truer base tariff, in that context, would offer consumers a more prudent choice of consumption.

And finally, there is the ever-present danger of additional surcharges. With the upcoming budget and supposedly the entire tenure of the government likely to be under the IMF’s eyes – higher surcharges to make up for inefficiencies of today and yesteryears for various reasons – are always around the corner. Recall that the existing rules allow for surcharges within 10 percent of the aggregate revenue requirement. Don’t be surprised if the PHL surcharge gets revised from the existing Rs3.23/unit to somewhere between Rs4-4.25/unit come July 2024.