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Draft tariff policy to help power PSUs

P Vaidyanathan Iyer & Anil Sasi

The tariff policy drafted by the Union power ministry is likely to add a new twist to the ongoing tussle between the central power utilities and the Central Electricity Regulatory Commission over tariff orders.

The draft policy, which has been circulated among stakeholders, says mobilisation of resources for fresh investments should be a factor guiding the tariff-setting process.

The draft policy has also noted that regulators need to determine operational norms and permissible costs while setting tariffs and these should be uniform for the same category of projects.

Central utilities, especially the National Thermal Power Corporation, could derive mileage from the clause because its main argument against the CERC's tariff order was that its capacity addition programme would be affected if the order was implemented, an official said.

NTPC has also been objecting to differential treatment to its plants under the availability-based tariff order.

Private sector plants have incentives and disincentives linked to the plant load factor and depreciation norms.

The central public sector units have been lobbying to influence some of the stipulations in the tariff policy.

Other stipulations in the draft policy will, however, help the CERC in encouraging efficiency. For instance, the draft policy says tariff determination should encourage efficiency gains and better performance through higher returns.

Among other things, the draft says the principles of a common minimum action plan for raising the minimum tariff to cover 50 per cent of the cost of supply in three years need to be implemented at the earliest.

Tariffs should emerge through a competitive process, it says. Tariff-based bidding should be the route for the development of new power projects in the private sector, the draft adds.

Where tariffs are not determined through a competitive process, these will have to be determined by regulatory commissions as provided for in the ERC Act, 1998, it points out.

The policy says regulators may choose between return on equity and return on investment. The draft also calls for the need to move towards a regime of pre-tax returns rather than post-tax returns so that efficient tax management is encouraged.

The rate of return needs to have a correlation with interest rates and the bank rate and should take into account the differences in the gestation period of investments in hydro, thermal, transmission and distribution projects.

A higher rate of depreciation may be permitted by regulators if the higher provisions sought are to be fully utlitised, the draft says.

A differential tariff for peak and off-peak hours may be introduced to flatten the load curve, it adds.

Distribution tariffs should move towards a multi-year performance target to encourage efficiency gains and to reduce transmission and distribution losses.

A higher rate of return in the initial transition period for private distribution companies to encourage tackling of distribution losses will be justified, the draft policy has said.

As required under the objectives laid down by the Electricity Regulatory Commissions Act, 1998, a group had been constituted by the power ministry to prepare a concept paper on the tariff policy for the power generated by the central public sector undertakings.

The draft was being circulated among various stakeholders in the sector and the final policy was expected in about a month's time, officials said.

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