Commercial power rate may soon be deregulated

Indian power distribution companies (discoms) can look forward to a bonanza if the law ministry agrees with the Attorney General's (A-G's) view that tariffs for customers consuming 1 Mw and above be deregulated.

The power ministry, which had sought the A-G's opinion, has sent it to the law ministry for its views.

In his response, the A-G said a state commission could not regulate tariff for such consumers, which were mostly industrial and commercial in nature.

This, he said, was based on the interpretation of the amendment to Section 42 (2) first proviso in 2007, whereby the word "may" was substituted by "shall".

Industrial and commercial consumers account for 40 per cent revenue of discoms.

The Forum of Regulators has, however, expressed reservations about the A-G's opinion. In a meeting last week, the representative body of power regulatory commissions warned that most such consumers (1 Mw and above) might face problems if the A-G's view was accepted.

Even if these consumers get cheaper power from an entity other than discoms, they will have to depend on local licensees for unregulated standby supply, which may come at exorbitant rates. Thus, they will be forced to buy power from local licensees at an arbitrary price dictated by discoms.

Section 49 of the Electricity Act provides that on grant of open access, the agreement between the supplier and the open access consumer (including the price of power) will be mutually decided.

CERC Chairman Pramod Deo, who heads the forum, told Business Standard the objective of the amendment was to remove the expression "elimination of cross-subsidies" and it did not deal with the question of whether open access was mandatory or not.

In addition, he says, there are other provisions in the Act which need to be read harmoniously to understand the concept and implication of open access under Section 42

of the Act.

The consequences of forced open access had already been brought to the notice of the power ministry and "we believe that the ministry would approach the law ministry for a review of the A-G's opinion," he said.

Others agree. Former power secretary R V Shahi warned deregulation would create a chaotic situation and affect the interests of consumers.

"It might also lead to confusion as cross-subsidy, even according to the tariff policy, has to remain within plus-minus 20 per cent of the average tariff."

Shahi said while the legal opinion might support tariff deregulation, the objective of the Electricity Act - of protecting consumers' interests - should not be defeated.

Understandably, power distributors are happy with the AG's opinion. Ajoy Mehta, managing director of the Maharashtra State Electricity Distribution Company, welcomed the move.

"To operationalise open access, there is a need to rationalise agricultural tariff. The regulators must realise that tariffs are high for industrial and commercial consumers not because of the inefficiencies of discoms but because of the need to subsidise agriculture and low-end domestic users," he said.

Jayant Deo, MD of the Indian Energy Exchange and founder member of the Maharashtra Electricity Regulatory Commission, said the Electricity Act provided open access in distribution to consumers with a load of over 1 Mw since January 2009 and that such consumers would not be subject to regulated tariffs.

"Regulated tariffs encourage bulk consumers to buy from the market only when prices are low. This system is neither fair to the trade nor to the distribution companies. In the absence of regulated tariffs, the consumer will rationally choose from the available options, including power exchanges. This will allow discoms to increase their consumer base across the nation," he added.

Ajai Jain, CMD of AP Transco, said the interests of discoms and long-term consumers needed to be protected while changing the tariff norms.