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HindustanTimes Fri,11 Jul 2014

Multi-year tariff to be introduced in UP

Brajendra K Parashar, Hindustan Times  Lucknow, June 12, 2010
First Published: 00:21 IST(12/6/2010) | Last Updated: 00:23 IST(12/6/2010)

The UP Power Corporation Ltd (UPPCL) will now shift from the annual tariff filling exercise to a multi-year tariff (MYT) filling system, from this year.

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Under the new system, the corporation will submit a five-year trajectory of expected revenue, expenditure and losses on the basis of which UP Electricity Regulatory Commission (UPERC) will determine power tariff tentatively for next five years at one go.

The MYT the introduction of which is mandated by Section 61 of the Electricity Act, 2003 and the national tariff policy comes with incentives and disincentives for the Utility. It is a performance based tariff which is expected to make power companies accountable and direct them to achieve pre-determined targets to be set by the UPERC.

The UPPCL has also engaged the KMPG, a consultant to help it file the multi-year tariff hike proposal at the UPERC. “The KPMG is already at work preparing the trajectory for next five years, projecting our revenue requirement, expenditure and losses each year. Once the exercise is complete, we will file the proposal to the commission,” said a senior UPPCL official.

Once MYT is introduced, the UPERC will have to declare a mechanism for sharing profit and losses among consumers, the UPPCL/discoms  as per the predetermined targets. In case of a profit, 33 pc of it may be transferred to consumers by way of reduction in tariff for the next year. But if the predetermined targets are not achieved by the UPPCL/ discoms, entire loss may have to be borne by them and no revision of tariff will be permitted for the next year,

MYT is defined as a framework for regulating the licencee (UPPCL) over a period of time wherein the principles of regulating the returns/profits of licencee  and the trajectory of individual cost and revenue elements of the Utility (UPPCL) are determined in advance.

“The basis premise is that tariff would not fluctuate beyond a certain bandwidth unless circumstances so warrant. The consumer will have a fair idea of what to expect in the next three-five years and the utility would also be able to plan its business having known the principles,” explained the official.

Benefits

  • The shift from annual tariff determination exercise to a multi-year system is may bring following benefits;
  • Reduction in regulatory effort on the part of the commission, utility and other state holders.
  • Reduction in regulatory uncertainty and provision for transparent and stable system of incentives and disincentives.
  • UPPCL/discoms can plan their requirements as per the approved budget.

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