CERC proposes price cap on short-term sale of electricity

The Central Electricity Regulatory Commission (CERC) has proposed a price cap on short-term sale of electricity between states, which has increased by more than 50 per cent in the last one year.

The power regulator, in a staff paper put on its website, suggested a price cap of Rs 5 per unit of electricity traded, if the power is generated from hydro and coal (both domestic and imported coal) plants. For peak demand in the evening, the paper suggested a cap Rs 6 per unit.

“Appropriately designed price caps, if successfully implemented, would address the concerns about profiteering in shortages and also the feeling of hardship in deficit states. Market reforms cannot completely ignore the present day realities,” the CERC paper said.

 

The average sale price of traded power has gone up to Rs 7.24 per unit in the three months ended June 2008, as against Rs 4.64 in the corresponding period last year mainly on account of increase in power shortage.

Explaining the rationale for fixing the price, the CERC paper said a typical production cost for a domestic coal plant is Rs 1.9 per unit (if coal is available near the plant) or Rs 2.94 per unit (if coal has to be transported to the plant), and Rs 3.5 per unit if imported coal is used. In the case of hydro, it has estimated at Rs 4.72 for Tehri Hydro plant.

“Therefore, one cannot escape the conclusion that most of the traded power that is costing less than Rs 4 per unit is being sold in the price range of Rs 6 and Rs 8.5 per unit. The deficit states perceive it as a profiteering by the surplus state. The surplus states perceive it as an exercise in cost optimisation, which helps them to wipe off their accumulated losses and avoid tariff hikes,” the paper said.

Further suggestions relate to grid discipline and strict monitoring of overdrawal by the states.