The Karnataka Electricity Regulatory Commission (KERC) has issued a `tariff philosophy' in order to regulate tariff revision and cross subsidies. This is being considered the state regulator's first step towards preparing a tariff policy.
KERC, in its document circulated to various members and other energy experts for their views, has stated that the section on tariff revision should clearly state the frequency of revision and the factors which need to be taken into consideration.
The document also points out that if the KERC believes that the cross-subsidy is extremely high, the policy should clearly spell out the period and the amount over which the cross-subsidy should be reduced to. It makes it clear that this is of vital importance to the government, since this will be the basis for estimation of the subsidy burden likely to devolve on the government.
On the issue of tariff escalation, the document states that the Act provides for not more than one revision in a particular year. Hence, the policy should be able to give a clear signal to the industry about how frequently the tariff will be revised.
With regard to consumer tariff components, the policy will have to specify its ideas regarding various components of tariff that will be allowed. It should also specify its views on seasonal and time of day tariffs as well as on the issue of whether there should be a uniform tariff throughout the state for any particular category of consumers or whether they should vary from region to region, the document said.
Currently, there are several components in the tariff. There is a demand charge, the energy consumption charge as well as one-time payments; such as deposits, developments charges and infrastructure charges.
The document said the commission will have to prescribe the manner in which generating companies can enter into agreements with distribution companies and other licensees for sale of power.
The broad principles which should govern this process need to be made clear and the methodology to be followed for allowing transmission tariffs also needs to be explained, the document stated.
With regard to the correction of tariff, the document states that the commission will have to specify the guidelines, subject to which mid-term revision will be undertaken.
This is because of the fact that in spite of the most meticulous analysis, situations could arise where revision to the tariff at intervals shorter than prescribed generally, may be required to take care of short falls in cost recovery or over-recovery of charges.
Regarding the licence period, the policy should clearly spell out the period for which licence should be given, because too short a period could result in very limited investment, the document stated.
On the issue of subsidy from the government, the commission has been asked to clearly state the manner in which it will compute the quantum of subsidy which the government will have to pay if it issues policy directives regarding the supply of power to any category of consumers at rates below than the tariff fixed by the commission.
The objectives of the tariff philosophy include, ensuring financial viability of the electricity sector entities on a continued basis and enabling electricity sector entities to attract the capital required for investment on commercial terms.
The methodology has also been spelt out which includes, norms for determining prudent capital investment eligible for inclusion in the asset base, norms for establishment cost, O & M cost and review of financing cost and the manner in which power purchase costs will be reckoned in estimating the total revenue requirements of the utilities.
TARIFF PHILOSOPHY
* The policy should state the frequency of revision and the factors forcing a revision
* It should specify the period and amount over which the cross-subsidy should be reduced
* There cannot be more than one tariff revision in a year
* The policy will have to explain its stand regarding the components of tariff to be allowed
* The commission should prescribed the manner in which generating companies can enter into agreements with distribution companies and other licensees for sale of year.
Subsidies: Commission has been asked to clearly state the manner in which it will compute the quantum of subsidy to be paid by the government. The subsidy will be paid only if the government issues any policy directives regarding at rates below the tariff fixed by the commission.
Objectives: Ensuring financial viability of electricity sector on a continued basis and enabling the sectro attract the capital required for investment on commercial terms.
Metodology: Norms for determining prudent capital investment eligible for inclusion in the asset base, norms for establishment cost, O & M cost, review of financing cost and the manner in which power purchase costs will be reckoned while estimating the total revenue requirements of the utilities