In a bid to provide a much-needed relief to crisis-hit power companies, the power ministry has proposed changes in the Electricity Act to reform the tariff determination mechanism. If the ministry has its way, rates will not be fixed by appropriate commissions, but by competition.
However, the Forum of Regulators (FoR), a representative body of regulatory commissions in the country, has taken strong objection to the power ministry’s ministry’s proposal to amend the Section 62 and 63 of the Act, citing the Indian power market was still evolving and there was no need for such amendments at this point in time.
The ministry under Section 61 (1) has proposed: “Appropriate Commission may, for promoting competition among distribution licensees, fix only maximum ceiling of tariff for retail sale of electricity.”
Further, under Section 63, the ministry has envisaged: “Provided that the appropriate commission may, in case of shortage of supply of electricity, fix the minimum and maximum ceiling of tariff for sale or purchase of electricity in pursuance of an agreement entered into between a generating company and licensee or between licensees, for a period not exceeding one year to ensure reasonable price of electricity.”
A power ministry official confirmed that the issue was discussed on August 29 at a meeting convened by Union Power Minister Veerappa Moily with regulators.
Pramod Deo, chairman of the Central Electricity Regulatory Commission and FoR told Business Standard: “The regulators by and large are of the view that there is no need to amend the Sections 62 and 63 of the Electricity Act.”
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V P Raja, chairman of the Maharashtra Electricity Regulatory Commission, shared Deo’s views, “Indian power market is still evolving and yet to become a matured one. It cannot be left to market selecting process. There is a lot of aberration, fuel shortage is one of them,” he said.
R V Shahi, former union power secretary said that as per Section 63, power projects would be developed through competitive bidding for tariff. This has been the basis for guidelines for case I and II biddings.
“Section 62 will still be relevant as from time to time the appropriate commission will need to review the tariff of old power plants whose tariffs were fixed on the basis of cost cum performance criteria. For hydro power project, in any case, under the hydro power policy, tariff based bidding has not been stipulated and therefore regulators will need to fix the tariff keeping in view of the project cost and other relevant parameters,” Shahi added.
A state regulator, who did not want to be identified, said tariff fixing based on transparent bidding process of new power plants might be possible but it would be impractical for old power plants. “Tariff of old power plants is cost plus and appropriate commission needs to fix it,” he said.