The power sector, among the most reluctant to embrace market-determined pricing, may finally be mending ways, with definitive legal sanction.
As per a clutch of amendments proposed to the Electricity Act, 2003 by the Narendra Modi government, the Centre will acquire a firm legal grip over the state electricity regulatory commissions (SERCs) so that they will not only be immune to state-level political arm-twisting but will also have to compulsorily implement the periodic tariff revisions necessary to sustain power distribution.
According to the changes suggested, in case a discom fails to file the annual revenue requirement (ARR) 30 days after the deadline set by the regulator, the latter will have a legal obligation to initiate a tariff revision, using the data at its disposal and issue a new tariff order within the next 90 days.
What’s more, if Parliament approves the changes, the Centre will have two nominees of its own in the SERCs. The number of members on each state regulatory commission will be five, instead of three currently. Also, the tenure of an SERC member will be reduced to 3 years from 5 years at present, with the Forum of Regulators having the authority to ask a non-performing member to go.
Currently, the Centre has inadequate say on SERCs’ affairs even though these commissions are advised to function under a set of guidelines issued by it. “The proposed changes will help avoid unwarranted delays in the tariff determination process, which not only erode the financial strength of discoms but also lead to regulatory overhang. Delayed tariff revisions have resulted in hefty hikes, which consumers find difficult to absorb,” a government official told FE. At the same time, the distribution sector that requires huge investments, remains the preserve of the public sector sans the benefits of multiple players and competition.
Under the current guidelines, tariff revisions have to be effected annually to ensure that discoms recover at least the cost of service, but the regulators, in most cases, are unable to ensure the guidelines are adhered to. This has been due to state governments’ reluctance to allow tariffs to be revised. Haryana and Tamil Nadu, for instance, had not revised tariffs for nine years between 2001 and 2010.
Rajasthan discoms could not raise tariffs for five years between 2005 and 2010. Earlier this month, in a move that has few precedents, the Tamil Nadu electricity regulatory commission took a suo motu decision to revise the power tariffs by 15% in the wake of the discom’s failure to file a tariff revision petition. The financial restructuring plan, under way for loss-ridden discoms, also includes timely tariff revision but even this has not been implemented in earnest.
“The accumulated losses of state power discoms are now estimated at over Rs 2 lakh crore. This precarious financial condition has been brought about mainly by infrequent and inadequate tariff revisions and non-payment of subsidies by state governments. The central government hopes that by making provisions of tariff revision legally binding, it will be able to avert political decisions that go against sectoral health,” the official added.
As per the proposed changes in the SERC constitution, a retired high court judge and the chief secretary of the respective state will, as at present, represent the state in an SERC which also includes the CERC chairman. The two additional members would be chairpersons from the Central Electricity Authority (CEA) and another nominee of the Centre, who would be a functionary from a financial institution at the level of the chairperson or managing director.
“The changes in the constitution of the commission would definitely enhance the control of the Centre and the sector would indeed benefit from this, since distribution reforms are the need of the hour,” an industry expert said.
Moreover, the Centre has also proposed to mandate that all SERCs follow the provisions of National Tariff Policy (NTP) while determining the tariffs for discoms. A CEA report says that several states have yet to fully implement the multi-year tariff regime, a critical provision in the national tariff policy for bringing in efficiency and financial probity to discoms.