No access

It is a matter of some relief that the draft tariff policy for the power sector appears to have put an end to an unseemly dispute that surfaced a year ago between the power ministry and the Central Electricity Regulatory Commission (CERC).

The Electricity Act 2003 provided that the ministry will lay down a tariff policy for the central regulator to implement. There is no ambiguity in the law.

The government will outline the broad principles of power tariff fixation, while the regulator will determine the tariff for each distributor on the basis of those principles.

But what followed was something quite different. In the garb of a draft tariff policy, circulated to various stakeholders including the central regulator, the ministry came out with detailed guidelines on the terms and conditions the regulator should use for fixing power tariffs.

The regulator cried foul, arguing that the ministry had trespassed into areas that lawfully came under its jurisdiction. The argument had merit, and the draft policy was hurriedly pushed under the carpet.

The ministry has now come out with a new draft of the tariff policy for the power sector, which (as reported in this newspaper) makes no attempt to set either tariffs or norms.

The confrontation between the regulator and the ministry thus seems to be over. Once consultation with the states over the draft is completed and it becomes the new tariff policy, the central regulator can move ahead to implement it in letter and spirit.

Which is as it should be; indeed, the broad objectives of the new draft tariff policy are unexceptionable. It frowns upon the rampant practice of state electricity boards using different tariffs to cross-subsidise one set of consumers with another.

But recognising the political compulsions of continuing with some sort of subsidy for agricultural power, the policy recommends a three-tiered approach.

First, it stipulates that all subsidies should be paid directly and through a transparent mechanism. Secondly, power distributors should be asked to fix a cap on the subsidy, at 50 per cent of the cost of power supply.

And thirdly, the draft policy advises that by 2009-11, all distributors must fix tariffs for all categories of consumers within a 20 per cent price band""which would therefore define the limits of cross-subsidisation.

This is progress, but it is significant that the draft tariff policy is silent on the road map for the introduction of open access for large power users.

The Electricity Act had stipulated that by 2009 all users of one megawatt and above would be given the freedom to choose their power supplier.

But bulk consumers can exercise this choice only if there are enough power producers in a state. At present, open access is a distant dream.

The Planning Commission has, therefore, urged the power ministry to incorporate the phased introduction of open access in the tariff policy so that the target set for 2009 becomes achievable.

There is no doubt that a time-bound implementation of the open access system will help break the monopoly of state electricity boards in most states and will also act as an incentive for attracting increased investment in power generation.

A tariff policy that remains silent on open access can hardly achieve those objectives.