More debate over power tariff policy

Cost-plus tariff provides higher returns for distribution

The Cabinet committee on economic affairs (CCEA) has decided to refer the electricity tariff policy to a committee of secretaries. "The CCEA had a brief discussion on the tariff policy yesterday. However, it was felt that the issue was a complicated one and it was decided to refer the matter to a committee of secretaries," said an official.

The final version of the policy, criticised for perpetuating the cost-plus tariff setting formula, makes provisions for higher returns for distribution, keeping in mind the higher risks involved in the segment. It also provides for setting up a contingency reserve fund to help distribution of monies, and includes provisions to provide a fillip to non-conventional energy sources and to projects with lower greenhouse gas emissions.

"The rate of return on equity notified by the central electricity regulatory commission (CERC) for transmission may be adopted bySERCs for distribution with appropriate modification taking into view the higher risks involved." It also specifies that the CERC may adopt the alternative approach of regulating through returns on capital at an appropriate time in the interests of consumers, "if it is felt to be in the interests of consumers". "The SERCs may consider a 'distribution margin' as the basis for allowing returns in distribution business at an appropriate time," it adds.

Provisions have been made for contingency reserves subject to an overall cap. Any amount in excess of the cap is to be refunded to consumers in the subsequent tariff period. The reserves will be used with approval of the SERC in case of contingency conditions, like transformer breakdowns and provision of new cables, to be specified by state regulators.

The SERCs may also encourage suitable local area-based incentive and disincentive schemes for the staff of the utilities linked to reduction in losses. Tariffs for coal-based generating stations will also include a reasonable cost of setting up coal washeries, coal benefication system and dry ash handling and disposal systems.

The final policy has also done away with the provisions of re-setting of interest rates every three years to reduce the interest rate risk on project developers and has dropped the provision requiring the CERC to specify a ceiling on allowable interest rates.

It specifies tariff setting for all electricity projects that result in lower green house gas emissions, compared with the base line, and shall take into account the benefits from clean development mechanisms in order to provide incentives to project developers.

On non-conventional energy, it says the CERC will lay down guidelines, in cases where procurement is not through competitive bidding, within three months of pricing of non-firm power.