CERC proposes cap on power prices

In a move to initiate regulatory measures to restrain escalation of price of electricity traded in the bilateral market and through power exchanges, the Central Electricity Regulatory Commission (CERC) has proposed to put a cap on the price of electricity. The CERC has thus proposed to direct that, from now on, the minimum tariff or bidding price shall be Rs.0.10/Kwh and the maximum ceiling of tariff or bidding price shall be capped at Rs11/Kwh.

The CERC will hold a public hearing on September 8 and allow the interested parties to make their submissions. If its proposals are endorsed then the capping on price of traded electricity will apply for a period of 45 days from the day of this order, and thereafter this would be reviewed.

But questions have already been raised by states like West Bengal who are actively engaged in the electricity trading about the rationale of this kind of intervention by the CERC. It is reliably learnt from the officials of the West Bengal State Electricity Distribution Co. Ltd. (WBSEDCL) that it has not only differed from the findings on which the Commission based its decision, but it is going to oppose the CERC proposal in the meeting scheduled at Delhi on Tuesday. In that meeting the WBSEDCL is likely to take the position that there is no scope of putting any capping on the sale price of electricity through power exchanges or bilateral agreements as the basic premises considered by CERC in terms of both fact and law are found to be wrong, unlawful and irrational. So, it is expected that much heat would be generated in the "public hearing" on Tuesday.

The CERC on August 27 issued a public notice for the hearing and along with it circulated the draft order among the interested parties. In the draft order while arguing in favour of putting a cap on the price of the traded electricity observed that "the distribution companies, for reasons best known to them, are refraining from load shedding as much as possible and are endeavouring to buy power at high cost so as to maintain standards of performance. Such buying decisions, apart from affecting the financial health of the distribution companies, are also likely to get reflected in the retail tariff payable by the consumers."

The Commission is of the view that the short term power prices have witnessed a steep increase in the recent past. It estimated that between 9 AM to 10 AM, the prices of electricity traded in the Indian Energy Exchange Ltd (IEX) have increased from Rs.6.11 per Kwh as on 3.8.2009 to Rs. 14.50 per Kwh as on 13.8.2009. Similarly the prices have increased from Rs.4.50 per Kwh to Rs 14.50 per Kwh during the said period in the Power Exchange India Ltd (PXIL). The volume of electricity cleared at the high prices was in the range of 650 Mwh to 850 Mwh during the week 10-16 August.

It claims that although the fuel prices of coal, diesel, Naptha, RLNG etc. have remained moderately stable during the above period, the power price behaviour has become disjoint form the fuel cost and the overall real cost. Referring to the clause (a) of sub-section (1) of section 62 of the Electricity Act 2003, the CERC has claimed that it is well within its right to fix minimum and maximum ceiling of tariff for sale and purchase of electricity.

But the WBSEDCL officials have questioned this interpretation of the Electricity Act 2003 and in an internal paper prepared to contest this draft order of the CERC, the WBSEDCL has pointed out that the said clause (a) of sub-section (1) of Section 62 of the said Act does empower the Commission to determine tariff for four type of transaction only. These are supply of electricity by a generation company to a distribution licensee, transmission of electricity, wheeling of electricity and retail of electricity.

Subsequently, such clause has been further qualified through a proviso where fixing the minimum and maximum ceiling of tariff is referred in the sale of electricity between a generating company and a licensee. Thus, according to them WBSEDCL, the Commission is not empowered to fix tariff where power trade is taking place between one distributor licensee to another distributor licensee. Referring to the ‘Objects and Reasons’ of the Electricity Act 2003, the WBSEDCL has stressed the point that "where there is direct commercial relationship between a consumer and a generating Company or a trader, the price of power would not be regulated and only the transmission and wheeling charges with surcharge would be regulated."

Also, it refuses to accept the cost analysis offered by the Commission. A senior official argues that if comparison is done from two years from 2008-09 to 2009-10, one could see that the price of coal has been increased “in disguise through MoU route between Coal India and different generating stations for supplying coal from dedicated coal mines.”

The import of coal has further added to the fuel cost and adversely impacted the tariff from generating stations. For example, the price of electricity from NTPC’s Farakka Thermal Power Station has increased by 72 per cent between April, 2008 and 2009 (from 181.11 paise / Kwh to 311.61 paise/Kwh). On the contrary, the increase in average price of traded power between the same period of August 2008 and 2009 in only 2.74 per cent.

Thus the WBSEDCL disagrees with the CERC's observation that the generating agencies are refraining from load shedding and buying power at high cost. While commenting that the impression thus created that load shedding should be encouraged, goes against the spirit of the Electricity Act 2003, the WBSEDCL officials reminded that there were instances where it refrained from purchasing power at high prices despite suffering significant shortages.