CERC proposes rationalisation of tariff for generation, transmission

New Delhi, Sept 1 (UNI) The Central Electricity Regulatory Commission (CERC) has published draft regulations on terms and conditions of tariff for the period 2009-14 seeking comments of stakeholders by September 28, this year.

According to an official release issued here today, CERC is of the opinion that by ensuring reasonable price for electricity while at the same time facilitating sufficiency of supply through adequate inducements to the investors so that the consumer interests are best served.

The proposed draft tariff terms published by the CERC bear out this philosophy in letter as well as in spirit.

The main highlights of this document says that the tariff fixation procedure be simplified, provision for provisional tariff done away with, benchmarking of capital cost for thermal and transmission projects, post tax ROE of 14 per cent retained, sharing of hydrological risk in a reasonable manner, norms of operation to be tightened, beneficiaries not to take burden of payment of tax on the income on UI earnings and incentives, depreciation rationalised avoiding front loading of tariff.

The regulations reiterate the Commission's commitment to a light handed regulation by providing inter alia for an enabling framework for capital cost benchmarks for prudence check, doing away with the requirement of provisional tariff, benchmark norm for continuous renovation and modernisation of plants beyond normative useful life.

The document said that the tariff would be determined upfront for the tariff period based on the actually incurred and/or projected expenditure of capital nature and truing up exercise would be undertaken at the terminal year 2013-14.

Any attempt at over projection is discouraged by providing for refund of excess recovery at SBI PLR rate of interest. This seeks to provide regulatory certainty for the investors while at the same time safeguarding interests of beneficiaries against inflated projection of capital expenditure by the generators and transmission companies.

Capital cost is the starting point for cost plus tariff regulation and the Commission has set in motion a process of controlling such cost through benchmark norms for capital expenditure for thermal generation and transmission projects, proposed to be specified separately.

This would go a long way in inducing investors to efficient management of capital expenditure resulting in benefits to the beneficiaries, the release said.

The depreciation rates have been rationalised in order to reduce front loading of tariff while at the same ensuring adequate cash flow for the investors.

The consumers have also been given relief from payment of tax on the income on net Unscheduled Interchange (UI) earnings and incentives. ''This would reduce the burden of the beneficiaries,'' it said.

The new mechanism proposed for additional expenditure on maintaining the efficiency of plants, as they age, will ensure that consumers are not required to pay additional return on capital for the same level of benefits.

Tightening of norms of operation especially raising of availability factor for recovery of fixed cost would also relieve the burden of the beneficiaries significantly. In hydro, as a departure from the existing practice the hydrological risk has been proposed to be shared between the beneficiaries and the generators.

The new proposed tariff norms also ensure that power sector continues to be attract required investments. The 14 per cent post tax ROE has been retained, besides incentive for performance better than norms has been linked to availability as against the existing practice of payment of incentive based on actual generation (Plant Load Factor).

Thermal generating stations will have a option to avail additional compensation in Rs Lakh/MW per year terms so that the plant owners remain incentivised to maintain the unit availability at a good level even after its useful life.

Norms of operation have been rationalised with due regard to the real life operational constraints and factors like vintage. O &M norms have been rationalised by duly factoring in the inflation and reasonable compensation for salary hike of employees, the release added.

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