Hopefully, the tariff policy will help restore SEB health
After coming out with the UDAY scheme for fixing the health of electricity distribution companies (discoms) a few months ago—this is largely predicated on a very ambitious reduction in aggregate technical and commercial losses from 27% right now to 15% in three years—power minister Piyush Goyal has got the Cabinet to clear a new tariff policy which, hopefully, will get state electricity regulatory commissions (SERCs) to automatically allow certain tariffs to be passed on to consumers. Not surprisingly, given the government’s focus on green energy, the tariff policy makes it mandatory for discoms to, by 2022, buy 8% of their power from solar and other sources—whether this is viable is a different question given that beyond a point, solar/wind make grid management very tough. The policy, though, tries to address many of the issues that have cropped up in the last few years.
So, after the long battle fought by Reliance Power at the Central Electricity Regulatory Commission (CERC) to get consumers to pay for the new cesses by the Madhya Pradesh government—CERC ruled in Reliance’s favour—the ‘change in law’ clause has been inserted in the tariff policy; if there is any new tariff put by a state, this will be automatically passed on to consumers. The same is to be done for routine increases in the cost of fuel. Indeed, if a power plant has to either import coal or buy it in an e-auction due to Coal India’s failure to supply contracted coal, this too has to be passed on. This has not been done in the case of plants running on imported fuel—this is the crux of the battle being fought by Tatas and Adani for their imported-fuel power plants following the change in Indonesian law—though the bid document for the new ultra-mega power plant (UMPP) in Tamil Nadu seeks to address this partially. The fact that the new tariff policy says that CERC’s writ will run for projects across various states—UMPPs fall in this category—must be a big relief for producers since, in the Tata/Adani case, CERC awarded compensatory tariffs; of course, there is no guarantee the CERC will take a similar stand under another chief. Since tariff policies in the past have also had various guidelines that would normally have meant larger tariff hikes by SERCs, the Centre has tried to get around this by putting in slightly stricter language in the policy. Ultimately, though, SERCs have to carry out the implementation and, at least so far, they have tended to go along with state governments in keeping tariff hikes to the minimum. Whether this changes remains to be seen, and a lot will depend on whether states see UDAY as yet another breather for them—like the Montek Singh Ahluwalia package in 2002 and the Financial Restructuring Package in 2012—or whether they feel the government is serious about this being the last bailout.