Significance of multi-year tariffs

Section 61 of the Electricity Act 2003 states that the electricity regulatory commissions, while determining tariffs, shall be guided by the multi-year tariff (MYT) principles in addition to the other guidelines, such as, determination of tariff so as to encourage competition, efficiency, economical use of resources, recovery of cost of electricity in a reasonable manner, rewarding efficiency in performance, etc.

Separately, the tariff policy announced by the government of India in January 2006 states that the multi-year framework is to be adopted for any tariff determined from April 1, 2006. Now, what exactly is MYT and what is its significance?

MYT has been proposed in the Electricity Act 2003 to give an element of certainty to all stakeholders. The basic premise is that tariffs would not fluctuate beyond a certain bandwidth unless there are force majeure conditions.

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