The November 11 order of the Appellate Tribunal for Electricity may go a long way in rectifying the severe imbalance created in the country's power sector due to inadequacy of tariffs charged by a large number of State Government controlled distribution utilities (discoms).

On the flipside, it will definitely pinch consumers as tariffs may soar.

The major fallout of this imbalance is already reflected on the country's commercial banking sector.

According to a Plan Panel report, the banking sector had financed revenue gap of discoms by advancing short-term loans in excess of Rs 1,50,000 crore in the last few years. The loans were reportedly offered without any State guarantee and at times far in excess of the net worth. Even Rs 20,000 crore-worth long-term finance for capital projects was reportedly diverted to meet the working capital crisis.

“The order should go a long way in avoiding a system collapse,” said a West Bengal Government official.

The West Bengal Government incidentally restricted State-run utilities in submitting tariff petition for 2011-12, so as to justify the popular sentiments. The State level regulator is yet to act on Appellate Tribunal's order to award tariff order for 2010. This is on top of setting aside nearly Rs 2,500 crore worth of claim of utilities as “regulatory assets” (meaning assets which are booked as profit by utility but not realised) against cost push till 2009.

If Friday's order is implemented, the State regulator should not merely grant tariff order for the last two years but also allow realisation of regulatory assets sending tariff anywhere close to Rs 6 a unit up from the existing Rs 4.20 a unit.

The Appellate Tribunal made it binding that all State-level regulators should file status reports periodically to the Tribunal (through forum of regulators). It would be difficult for the political bosses to force the utilities to subsidise electricity. The option of direct cash subsidy by State Governments to the utilities, however, is already left open.

In other words, if States want to offer cheaper power, they are welcome to do at own cost – a tough lesson to States such as Tamil Nadu, Rajasthan and Tripura where utilities file tariff petition in the gap of 5-7 years. All three put up an opposition at the hearing of the suo-moto petition by Appellate Tribunal since January this year.

The three State commissions challenged if State level regulators are empowered to order suo-moto tariff revision order for utilities (in the absence of tariff petition) and whether the Tribunal is legally empowered direct the state commissions to initiate such suo-moto tariff revision. Both the arguments failed to convince the Full Bench of the Tribunal.

Interestingly, what made the Appellate Tribunal's wholesome is that in addition to asking the state commissions to announce tariffs for the full fiscal based on the Annual Revenue requirement (ARR) assessment placed by either the utility or decided suo-moto, the state regulators “must” put in place a mechanism so that the utilities can recover the rise in fuel and power purchase cost “preferably” once in a month.

“Fuel and power purchase cost is a major expense of discoms which is uncontrollable” and should be recovered fast, the Tribunal said and asked all State regulators to create necessary mechanism latest by May 2012.

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