Electricity bills could rise in the month of August or your area may see more power cuts than before on account of a reaction to the government's decision to stop supply to state electricity distribution companies (discoms) unless they do not make payments on time.

The Ministry of Power on 28 June issued an order that all discoms have to maintain sufficient letters of credit in favour of a power plant starting 1 August and on failing to provide the bank guarantees, will face supply cuts from the regional load despatch centres. The decision was taken to curb the mounting dues of these discoms with the power generators.

While the state's own generating units are exempt from it, discoms that are dependent on central or private generating plants will not be able to fully meet demand if there is a cut in supply.

Further, thermal power generators will now have to pay in advance for the coal procured from Coal India Ltd.

Forcing discoms to acquire Line of Credits will allow the generators to collect payment when discoms fail to pay and discontinue power supply to them. At present discoms continue to receive power without making payments for 3 to 5 months.

While the decision will put the generators dues in order, a CRISIL Research report suggests that the discoms will struggle to get the Line of Credits and as these LCs are to be equal to their monthly purchase bills, this would increase their working capital requirements. The credit ratings agency said that it estimated that it could raise interest burden by Rs 400-500 crore particularly for state utilities in the states of Uttar Pradesh, Karnataka, Tamil Nadu and Telangana, which already have high fiscal deficit.

The discoms will have to depend on bank borrowings to meet these LC requirements, raising debt and consequently increasing interest costs which it may sought to recover from its consumers. They may also opt for partial load-shedding to keep their costs in check.