The Hindu Business Line : Procurement by distribution licensees — Power tariff policy moots competitive bidding

THE Centre's new Power Tariff Policy has proposed that distribution licensees should procure all future requirement of power through a process of competitive bidding.

The policy, which was cleared by the Union Cabinet recently, has also given the Central Electricity Regulatory Commission (CERC) the discretion to choose between the Return on Equity (RoE) or the Return on Capital Employed (RoCE) approach while setting the tariffs for a project.

The policy, which is supposed to act as the broad guidelines for regulators while setting tariffs, also lays down a debt-equity ratio of 70:30 to be adopted for financing of future capital costs of projects.

"Promoters would be free to have higher quantum of equity investments. The equity in excess of this norm should be treated as loans advanced at the weighted average rate of interest and for a weighted average tenor of the long term debt component of the project," the policy said.

According to the policy, a two-part tariff structure should be adopted for all long-term power procurement contracts from generation projects.

Transmission: In the case of transmission, the policy calls for "a suitable transmission tariff framework for all inter-State transmission, including transmission of electricity across the territory of an intervening State as well as for conveyance within the State, needs to be implemented."

Distribution: In the case of power distribution, the policy asks State Electricity Regulatory Commissions to determine and notify the standards of performance of licensees with respect to quality, continuity and reliability of service to all consumers of the State.

Tariff: The policy has also called for the introduction of multi-year tariff framework for both public and private utilities. "This would minimise risks for utilities and consumers, promote efficiency and appropriate reduction of system losses and attract investments and would also bring greater predictability to consumer tariffs on the whole by restricting tariff adjustments to known indicators on power purchase prices and inflation indices," the policy said.