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Coal blocks for power: Tariff policy needs tweak by April

The Coal Ministry wants to make sure that after the coal block auctions there is no price impact on the end-consumer of electricity.

With this objective, it had designed the reverse bid mechanism – wherein a price ceiling is set and the lowest bidder wins – to auction the blocks earmarked for the power sector.

But to realise this objective, the Power Ministry will need to tweak the tariff policy in the next four months by when the e-auction of the coal blocks for the sector will be complete. While State power regulators can cap the tariff, a change in the Electricity Act may be needed to ward off any challenge by power producers subsequently.

As a senior Coal Ministry official told BusinessLine, “A tariff policy tweak can be done even without a change in the Electricity Act. For, the phrase in the Electricity Act – tariff determination – gives a wide latitude to the regulators.

They (the regulators) can, in consumer interest, cap tariffs, but it leads to disputes at times. To avoid any challenge to the tariff cap, it is better to notify it through a directive.”

The average cost of electricity from NTPC, the country’s largest power generator, is ₹3-3.50 a unit.

Distribution utilities buy power from NTPC at this rate. The end consumer price varies as the utilities set the rates based on the recommendations of the State electricity regulatory commissions. For example, the tariff in Delhi varies from ₹4.50 to ₹6.50 a unit.

Another issue is the Coal Ministry allowing power plants bidding for coal blocks to sell up to 20 per cent of their capacity on a merchant basis against 15 per cent now. This proposal is for plants whose entire generation capacity is not covered under power purchase agreements. This would also require a change in the tariff policy, which can be done by getting Cabinet nod.

The Power Ministry, in the amendments proposed to the Electricity Act, 2003, wants the entire tariff determination process completed within the stipulated time limit of 120 days.

If a distribution utility fails to file its Annual Revenue Requirement within 30 days of the last specified date, then the State electricity regulatory commission will suo motu initiate the tariff determination process and issue orders within 90 days.

This, according to industry watchers, will avoid unwarranted delays in the tariff determination process, which often leaves consumers with hefty bills because of the retrospective effect given to the rate.

Source: The Hindu BusinessLine