29 Dec, 2011
Soma Banerjee,ET Bureau

Electricity regulators have no choice but to revise tariffs though discoms don’t need it

Electricity regulators have, for long, been at the beck and call of their political masters despite the 'independent' status provided to them by law. But they may need to look for some fresh and innovative excuses to explain their failure to revise power tariffs regularly from now on.

A special order by the Electricity Appellate Tribunal in early November has made it mandatory for all electricity regulators at the state and central-level to revise tariffs annually before the beginning of the fiscal year irrespective of whether the power distribution companies, or discoms, ask for it or not.

It has ruled that the electricity regulator is empowered to regulate and revise power tariffs under the Electricity Act and the tariff order. The tribunal has also asked state regulators to enable mechanisms to ensure that utilities can reflect the increasing cost of fuel and power purchase every month. And regulators have been directed to put the system in place by May 2012.

Rising fuel prices have increased generation costs significantly over the last few years. On the one hand, production of prime fuels for power generation, coal and gas, has fallen short of demand, forcing power utilities to import. While some coal-based power companies are buying imported coal, some time from spot markets, to maintain power flowing to consumers, others are being forced to buy imported liquefied natural gas as domestic supplies of gas dry up.

This has raised the price of fuel, a variable element in power tariffs. On the other hand, regulators across states have remained mute spectators, preferring to toe the line of their political masters who do not want to pass on these costs to consumers. In most cases, tariff policies provide for routinely passing on the variable cost to the tariff.

But in practice, regulators and political leaders have opted to appease their vote banks, leaving tariffs untouched. Tamil Nadu, Rajasthan and Tripura top the list with no tariff revisions for more than seven years. Add Bihar and Uttar Pradesh to this list and they account for 70% of the total losses in the power sector.

Some of these regulators have even ignored recommendations from the central regulatory authority that has called for tariff revisions in line with rising costs. On the other hand, states such as Gujarat are role models where the regulator has revised tariffs every year within the stipulated time frame without depending solely on petitions filed by discoms.

The latest order by the tribunal makes it obligatory for the regulators to carry out their functions in accordance with the law. The political establishment or government of the day is entitled to recommend subsidies, but can do so only after providing direct subsidies to the state utilities upfront.

As many as 22 state regulators have not revised power tariffs for more than two years. It is estimated that the difference between the cost of producing power and the average power tariff is about 1.07 per unit, leading to a revenue loss of 52,000 crore in 2008-09 - enough to set up almost 10,000 mw of fresh generating capacity.