Strange approach to fixing power tariffs

The suo moto power given to electricity regulators to dictate the price has thrown up issues in three areas: information, enforcement/compliance and accountability. Does this discretion have desirable effects?

First, the background. The Tamil Nadu Electricity Regulatory Commission (TNERC) issued a suo motoorder revising the tariffs that Tangedco (Tamil Nadu Generation and Distribution Corporation) and Tantransco (Tamil Nadu Transmission Corporation Limited) can charge customers for the year 2014-15. The suo moto action was taken as both utilities had failed to submit their annual revenue requirement (ARR) petition.

The power was granted to the State Electricity Regulatory Commissions (SERCs) by the Appellate Tribunal for Electricity (APTEL). The effect is that SERCs can initiate tariff proceedings and unilaterally determine tariff without the submission of ARR petition by electricity utilities.

The non-filing and delay in ARR filing and tariff revision has impaired the ability of discoms to raise tariffs, further eroding their poor financial health. However, the ramifications of this power in respect of information, electricity markets, enforcement/compliance and accountability need to be looked into.

Information asymmetry

The inadequate information at the regulator’s disposal is a major issue. This is manifested in the fact that utilities can avoid disclosing their financial and technical cost structures by not filing ARR petitions; SERCs, as a result, do not have adequate and accurate information to arrive at a reasonable tariffs. As a result, informed public participation in the regulatory tariff process is greatly reduced. The public ends up with less bargaining and negotiating power with regard to better services and reasonable tariffs.

The Electricity Act 2003 treats electricity generation, transmission and distribution entities as separate business entities, run on commercial principles. As business entities, utilities have the right to recover costs in return for services provided, as also the right to earn a fair rate of return on capital invested in the business.

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