They say if power tariffs in short-term markets continue to rise at the current rate, distribution of power will soon become a loss-making exercise.
"We are buying power through short-term arrangements and evaluating possibilities of floating tender for medium term contracts," said P Rajagopal Reddy, director finance at Central Power Distribution Company of Andhra Pradesh.
"Our utility is witnessing sudden surge in demand on dry days and the shortfall goes as high as 25 million units from 5-10 million units of electricity on rainy days. We might face financial trouble if the power tariff goes beyond our cost to serve," Reddy said.
Energy demand rises during a deficient monsoon as farmers have to depend on water lifting devices to irrigate farms. According to some estimates, the demand for power has risen by over 25% in some states so far this year, against expectations of a 10 to 15% rise. This has pushed the prices in open markets.
The cash-strapped utilities say they cannot buy power through planned bilateral arrangements because such contracts require supporting financial statements.
"State utilities with power deficit sometimes lack capacity to provide us payment securities," said a senior executive at the energy and petrochemicals department of Gujarat government, a state with 1,500 mw of surplus power generation capacity.
"Instead of entering into short-term contracts with us, they prefer to procure electricity from the spot market where they don't have longer commitments."
A top executive at NTPC Vidyut Vyapar Nigam, the power trading arm of state-run NTPC, said, "The state utilities do not have the capacity to pay to power producers. Also, bids invited by state utilities with poor payment records are not attracting much response from the power producers."
Power exchanges, however, are not complaining. Rajesh Mediratta, senior vice-president (business development) at Indian Energy Exchange, said the average rate of a unit of power at his exchange is 6, against Rs 2-3 at the same time last year. The exchange reported a record sale of 175 million units this summer, about 25 million units more than the average of past few months.
States like Haryana and Uttar Pradesh have recently started trading on exchanges. Uttar Pradesh Power Corporation chairman and managing director Avanish Kumar Awasthi said there has been a spurt in demand in his state in the past 20 days, particularly from rural and agricultural areas.
He said the company is spending 4-5 crore daily on purchase of power from energy exchanges.