Column: Takeaways from CERC tariff norms

Dec 25 2013, 23:19 IST
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SummaryThe regulations safeguard supply companies from payment of incentive without buying power beyond prescribed norms

The Central Electricity Regulatory Commission (CERC) has come out with a new set of draft tariff regulations for 2014-19. The regulations, when approved, would be applicable to all central sector power generating and transmission companies, and generators and transmission licensees proposing to sell power to more than one state or those involved in inter-state transmission. We have seen a big thumbs down to the draft regulations by the investor community, manifested in dragging down of the share price of NTPC, the biggest power generator in the country, by almost 11.5% on the day the draft regulations were made public. Does this mean the new regulations are consumer friendly?

While promoting investment in the power sector forms a part of CERC’s mission, bringing about efficiency in the operations of the power generation and transmission companies and tariff rationalisation are equally important objectives of the commission. CERC’s tariff regulations have to take a balanced view about the concerns of the power generators, transmission companies and investor community on one hand and that of the consumers of electricity on the other. What is important is that the final regulations are based on the principle of transparency, techno-economic rigour and fairness so that neither consumers nor generators gain unduly at the expense of the other. Looking at the proposed regulations from this perspective, has CERC done a good job in protecting the interests of both the stakeholders?

Data from the Power Finance Corporation’s (PFC) report on the performance of the state power utilities for 2006-07 to 2011-12 shows that, at the aggregate national level, the cost of power purchase forms about 61-62% of the total expenditure of distribution companies (discoms) supplying power to ultimate consumers. Analysis of the data from PFC also shows that the power purchase costs of discoms have risen at a compounded annual rate of 16.42% between 2006-07 and 2011-12, when coal availability and hence higher coal cost was not much of a concern. Another set of data ranging over the past 10 years shows that the central sector power generating companies, the main entities coming under the purview of the proposed regulations, have been consistently meeting 41-42% of the power requirements of the discoms. In a sense, the proposed regulations will have over 24% impact on the tariffs that consumers would have to pay in a scenario where costs of power purchase as well as total discom expenditure has been rising at

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