Regulators to ensure timely hikes in electricity tariff

Written by Noor Mohammad | Noor Mohammad | New Delhi | Updated: Oct 28 2011, 12:00pm hrs
In a move that will go a long way towards improving the financial health of state-owned power distribution companies, electricity regulators have decided to invoke their seldom-used power to order timely tariff revisions whether or not the discoms are in agreement.

At present, tariff revision is recommended by regulators on the basis of annual revenue requirement (ARR) petitions filed by distribution companies by November every year. As state governments wield full control over the distribution entities, often political considerations prevail over economic prudence, preventing the annual revision of tariffs envisaged in the Electricity Act.

The latest move comes after the Union power ministry decided to hold regulators accountable for tariff revision delays. Following a petition filed by the ministry early this year, the Appellate Tribunal for Electricity asked state electricity regulatory commissions (SERCs) why they avoid using their power for suo motu tariff revision.

Power secretary P Uma Shankar welcomed the regulators move. He told FE: Discoms ARR petitions are like budget proposals and they must be submitted every year.

The Forum of Regulators (FoR) has agreed that their powers for suo motu revision of tariffs should be exercised in case discoms fail to file tariff petitions on time. There was consensus among regulators on the issue, Central Electricity Regulatory Commission (CERC) chairman Pramod Deo, who is also chairperson of the forum, told FE. The FoR is representative body of electricity regulators, which includes the CERC and all state regulators. The forums decisions are binding on all regulators.

At a recent conference here, state power ministers vowed to ensure that their distribution companies file annual tariff revision petitions without fail. However, the Union power ministry did not find the states assurance convincing and decided to make regulators responsible for timely tariff revision.

Due to pressure from state governments, discoms are reluctant to approach regulators for tariff revision, vastly expanding their losses. Combined discom losses are estimated to have crossed R1 lakh crore. In 2010-11 alone, they suffered losses of R42,000 crore after adjusting for payment received from state governments on account of subsidy for agriculture sector electricity consumers.

States like Uttar Pradesh, Madhya Pradesh, Rajasthan and Tamil Nadu have approached the Centre to bail out their loss-making discoms to little avail. Rather, it seems determined to push states on power sector reforms.

Following a recent Reserve Bank of India direction, banks and non-banking finance companies have tightened norms for extending short term loans to discoms. As a result, states like UP and Tamil Nadu have started defaulting on payment for merchant power purchased from traders like PTC India, Adani and Lanco.