Power policy skirts tariffs

Draft leaves pricing to regulator.

The draft tariff policy prepared by the power ministry avoids any confrontation with the Central Electricity Regulatory Commission's (CERC) guidelines and does not specify any norms for setting tariffs.

"The norms are to be determined by the CERC. The policy is in line with the National Common Minimum Programme, which says the regulatory structure will be strengthened, and does not interfere with the regulator's domain," said AK Basu, chairman, CERC. The tariff order for 2004-09, which has already been issued, was by and large in line with the policy, he said.

The power ministry had earlier proposed to include norms for setting tariffs in the draft policy, but the regulator went ahead and issued a detailed policy last year.

The document, which has been circulated for comments to various states, also calls for a review of the duties on electricity in order to bring them to a reasonable level. The draft policy is, however, in favour of time-bound recovery of uncontrollable costs, such as fuel, power purchase and taxes, through tariff hikes.

"In some cases, duties on the consumption of electricity are linked to sources of generation (like captive generation) and they are much higher compared with those on the same category of consumers who draw power from grid," it said.

On tariffs, the draft policy is in favour of quick recovery of uncontrolled costs. It says the focus should be on the regulation of output, and not input, costs.

"Uncontrolled costs should be preferably recovered within the financial year itself (typically on a quarterly basis) to ensure that future consumers are not burdened with past costs," it adds.

Arguing in favour of direct subsidies to needy consumers, rather than cross-subsidisation, the draft policy says state governments have the option of raising resources by levying duties on electricity and providing a maximum subsidy of 50 per cent of the cost of supply to consumers below the poverty line and consuming below a specified level.

It calls for confining cross-subsidies to a band around the cost of supply. State electricity regulatory commission (SERCs) will have to notify roadmaps (by September 2005) to bring tariffs within a 20 per cent range of the average cost of supply by 2010-11.

The draft policy says tariffs for agricultural use will have to factor in the use of ground-water resources in a sustainable manner, in addition to the average cost of supply.

So, there may be different set of tariffs for different parts of a state depending on the water table level.

Higher subsidies can be considered to support poorer farmers of a region, where lower water-table level requires a greater quantity of electricity for irrigation, subject to suitable restrictions to ensure the maintenance of ground-water level and sustainable ground-water use.

The issue of subsidisation can be left to state governments, but free electricity is not a good idea as it encourages wasteful consumption of electricity besides lowering the water table, it says.

The draft policy adds that subsidised power rates should be permitted only up to a pre-identified level of consumption, beyond which tariffs reflecting efficient cost of service should be charged from consumers.

If the state government wants to reimburse even part of the cost of electricity to poor consumers, the amount can be paid in cash or any other suitable way, it says, adding that the use of prepaid meters can also facilitate the transfer of subsidy to such consumers.

Power play
The draft tariff policy has been circulated among states. It:

Calls for a review of the duties on electricity in order to bring them to a reasonable level

Is in favour of time-bound recovery of uncontrollable costs, such as fuel, power purchase and taxes, through tariff hikes

Seeks quick recovery of such costs. It says focus should be on the regulation of output, and not input, costs

Calls for direct subsidies to needy consumers, rather than cross-subsidisation