Power ministry for real time pricing of electricity

Move means power charges will keep varying regularly for consumers in proportion to fuel charges, especially coal

The power ministry has asked all state power regulators to adjust fuel and power-purchase cost adjustment regularly on quarterly or monthly basis while setting the power tariff for consumers.

Explaining this, an official said the power price will thus be made real-time to cut down losses of distribution companies. For consumers, it means power charges will keep varying regularly in proportion to the fuel charges, especially coal.

This was discussed in a meeting of state regulators with the power minister last month. However state regulators are of the view that the centre should stick to section 61 & 62 of the Electricity Act which provide for tariff regulation and determination of tariff of generation, transmission, wheeling and retail sale of electricity by the Appropriate Commission.

They are of the view that it is premature to mandate competitive bidding for power procurement since fuel shortages remain a concern.

"Many regulatory issues relating to fuel availability are yet to be sorted out especially land acquisition issues in hydro projects, coal availability and pricing in thermal power plants etc. In such a scenario, competitive bidding will unevenly price the power among states across consumers" said the official.

The basic issue in competitive power procurement is whether tariffs can be changed after they have been discovered through competitive needs depending on fluctuations in fuel costs.

Officials explained that though under the supply Act of 1948, the power to fix tariffs vests with state electricity boards (SEBs), in practice it is done by state governments, which is why it has reached unsustainable levels. Again in 1998, Electricity Regulatory Commission Act was enacted to distance government from tariff determination. However consensus broke down in parliament and only 16 states notified the state electricity regulatory commission. Even after Electricity Act 2003, it is the state government that generally decides electricity prices.

Even on the issue of open access for large consumers, officials said that this is first ever model implemented in the world, which has fostered limited form of competititon. However the entire retail tariff structure is based on cross-subsidies by industry to agriculture and domestic sector, which is difficult to overcome. Open access is the freedom to large retail consumers - mostly businesses and industrial undertakings that consume more than one megawatt of power -- to purchase power from open market, be it state power distributors, power exchanges or captive producers connected to the grid.