The Central Government notified the National Tariff Policy on January 6, 2006, for the power sector in line with the Section 3 of the EA, 2003. With the announcement of the National Tariff Policy, there is greater clarity on the broad principles to be followed for tariff determination. The Central Electricity Regulatory Commission and State Electricity Regulatory Commissions shall be guided by the tariff policy in fixing tariffs for generation, transmission and distribution. It is important to mention that this policy does not curb the role of Regulators. It only sets broad guidelines for them and gives them enough room and independence to operate within these parameters. The Policy firmly establishes and separates the domain of the Government and Regulator. It moves the CERC centre stage and makes it responsible for evolving consistent procedures and practices in tariff setting; it also makes the process more transparent for Regulators.
The Regulatory Commissions would put a system of independent scrutiny of financial and technical data submitted by the licensee. They have also been called upon to encourage suitable local area based incentive and disincentive schemes for the staff of the utility linked to reduction in losses. Third party verification of energy audit results are to be used to impose area-specific surcharge for larger losses. Greater transparency and nurturing consumer groups will be the key feature of regulatory processes.
The objectives of the National Tariff Policy are to:
ensure availability of electricity to consumers at reasonable and competitive rates;
ensure financial viability of the sector and attract investment;
promote transparency, consistency and predictability in regulatory approaches across jurisdictions and minimize perceptions of regulatory risks; and
promote competition, efficiency in operations and improvement in quality of supply.
We present, in brief, an analysis of the National Tariff Policy and its implications for power distribution utilities.The policy emphasizes on deciding the rate of return, depreciation, and other issues in tariff fixation and attracting investment in the power sector. This has to be done by lowering the “regulatory risk” and introducing clear-cut tariff setting principles and philosophies.
Cross-subsidy: The policy provides clarity on determination of cross-subsidy and additional surcharges for open access to consumers and lays down a timeframe for rationalization of electricity tariffs and reduction of cross- subsidies. It also lays down the formula for computation of cross-subsidies.Consumers below the poverty line and consuming a small quantity of electricity shall continue to receive special support through cross-subsidised tariffs. To give a choice of supply to the consumers, the tariff policyenunciates a facilitative framework for calculating cross-subsidy surcharge. It also lays down a mechanism for arranging backup supply for such consumers.
Multi-year tariff: The multi-year tariff (MYT) framework is to be adopted for any tariffs to be determined from April 1, 2006 along with incentives and disincentives for better performance. The move towards multi-year tariffs also includes regulatory certainty. An investor can now understand with reasonable certainty the future course of action and direction of tariffs and therefore make better investment decisions. Gains from efficient operations are to be shared with consumers. Continued and proven inefficiency must be controlled and penalized.
Competition: The tariff policy bolsters competition by making it mandatory for a distribution licensee to procure power through competitive bidding by promoting captive power, open access and encouraging multiple players. The policy stipulates that the Return on Investment should be at par with other sectors and that tariffs should be based on norms and achievements.Incentives should be provided to motivate investors to be efficient.
Non-conventional energy: The policy promotes non-conventional energy and co-generation sources of energy by specifying a minimum percentage of off take of such energy. The developers of the project are to be given adequate incentive to avail of the benefits of the Clean Development Mechanism (CDM). The cost of the project will also allow reasonable cost of setting up coal washeries, coal beneficiation system and ash handling and ash handling and disposal systems.
Service standards: The forum of regulators (constituted by the central government for consistency in regulation in the area of distribution) will decide the basic framework of service standards so that the standards regarding quality, continuity and reliability of service can be enforced. Licensees failing to meet this standard will face penalties.
Agricultural users: The tariffs for agricultural use are to be fixed so as to address concerns about sustainable use of ground water resources. The provision of free electricity is not desirable as it encourages wasteful consumption of electricity and in most of the cases, depletion of the water table. To promote energy efficiency, time-differentiated tariffs are to be put in place within one year for large consumers of 1 MW and above.
Other features: For projects whose tariff is determined through performance-based cost of service regulation, the benefit of reduced tariff after full depreciation of assets is to be made available to the consumers. Similarly, for avoiding front loading of tariff, debt of longer tenor and adoption of mechanisms like take-out financing are to be considered. Restructuring of debt is to be done keeping in view the interest of consumers. Any additional capital investment for renovation and modernization is to be linked with pre- determined efficiency gains or for sustaining high level performance.
To improve grid discipline, the availability-based tariff system is to be extended to the state level. This will also facilitate integration of captive generation plants with the grid.
With this discussion on Tariff policy, we end this unit and summarise its contents.
The Regulatory Commissions would put a system of independent scrutiny of financial and technical data submitted by the licensee. They have also been called upon to encourage suitable local area based incentive and disincentive schemes for the staff of the utility linked to reduction in losses. Third party verification of energy audit results are to be used to impose area-specific surcharge for larger losses. Greater transparency and nurturing consumer groups will be the key feature of regulatory processes.
The objectives of the National Tariff Policy are to:
ensure availability of electricity to consumers at reasonable and competitive rates;
ensure financial viability of the sector and attract investment;
promote transparency, consistency and predictability in regulatory approaches across jurisdictions and minimize perceptions of regulatory risks; and
promote competition, efficiency in operations and improvement in quality of supply.
We present, in brief, an analysis of the National Tariff Policy and its implications for power distribution utilities.The policy emphasizes on deciding the rate of return, depreciation, and other issues in tariff fixation and attracting investment in the power sector. This has to be done by lowering the “regulatory risk” and introducing clear-cut tariff setting principles and philosophies.
Cross-subsidy: The policy provides clarity on determination of cross-subsidy and additional surcharges for open access to consumers and lays down a timeframe for rationalization of electricity tariffs and reduction of cross- subsidies. It also lays down the formula for computation of cross-subsidies.Consumers below the poverty line and consuming a small quantity of electricity shall continue to receive special support through cross-subsidised tariffs. To give a choice of supply to the consumers, the tariff policyenunciates a facilitative framework for calculating cross-subsidy surcharge. It also lays down a mechanism for arranging backup supply for such consumers.
Multi-year tariff: The multi-year tariff (MYT) framework is to be adopted for any tariffs to be determined from April 1, 2006 along with incentives and disincentives for better performance. The move towards multi-year tariffs also includes regulatory certainty. An investor can now understand with reasonable certainty the future course of action and direction of tariffs and therefore make better investment decisions. Gains from efficient operations are to be shared with consumers. Continued and proven inefficiency must be controlled and penalized.
Competition: The tariff policy bolsters competition by making it mandatory for a distribution licensee to procure power through competitive bidding by promoting captive power, open access and encouraging multiple players. The policy stipulates that the Return on Investment should be at par with other sectors and that tariffs should be based on norms and achievements.Incentives should be provided to motivate investors to be efficient.
Non-conventional energy: The policy promotes non-conventional energy and co-generation sources of energy by specifying a minimum percentage of off take of such energy. The developers of the project are to be given adequate incentive to avail of the benefits of the Clean Development Mechanism (CDM). The cost of the project will also allow reasonable cost of setting up coal washeries, coal beneficiation system and ash handling and ash handling and disposal systems.
Service standards: The forum of regulators (constituted by the central government for consistency in regulation in the area of distribution) will decide the basic framework of service standards so that the standards regarding quality, continuity and reliability of service can be enforced. Licensees failing to meet this standard will face penalties.
Agricultural users: The tariffs for agricultural use are to be fixed so as to address concerns about sustainable use of ground water resources. The provision of free electricity is not desirable as it encourages wasteful consumption of electricity and in most of the cases, depletion of the water table. To promote energy efficiency, time-differentiated tariffs are to be put in place within one year for large consumers of 1 MW and above.
Other features: For projects whose tariff is determined through performance-based cost of service regulation, the benefit of reduced tariff after full depreciation of assets is to be made available to the consumers. Similarly, for avoiding front loading of tariff, debt of longer tenor and adoption of mechanisms like take-out financing are to be considered. Restructuring of debt is to be done keeping in view the interest of consumers. Any additional capital investment for renovation and modernization is to be linked with pre- determined efficiency gains or for sustaining high level performance.
To improve grid discipline, the availability-based tariff system is to be extended to the state level. This will also facilitate integration of captive generation plants with the grid.
With this discussion on Tariff policy, we end this unit and summarise its contents.
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