The Cabinet Committee on Economic Affairs has approved the tariff policy on electricity, which will enable the state regulators to regulate power tariffs.

Finance Minister P Chidambaram, deputy chairman planning commission Montek Singh Ahluwalia and Minister of State in the Prime Minister's Office Prithviraj Chavan met this evening to finalise the details of the policy.

"There were a few remaining glitches which were ironed out today," said an official. There were issues related to surcharge which had to be addressed, the official added. An official announcement is expected on Monday.

The new tariff policy provides for setting up a contingency reserve fund to help distribution. It also aims to promote non-conventional energy sources and projects with lower greenhouse gas emissions. Besides, it will guide the direction of investments in the power sector.

The policy will curtail surcharges on captive generators to make their power competitive to other producers. The price of power will be differentiated with variable costs with reasonable compensation provided
for fixed costs.

The public sector undertakings will continue to charge regulator-approved tariffs that are cost-based. This is to ensure lower power purchase costs for the state distribution utilities.

The policy allows consumers (1 mega watt and above) to select their suppliers. The Central Electricity Regulatory Commission had recommended a power-trading margin of 2 paise per unit.  The commission supports the regulation of power trading.

But the power surplus states of Orissa and West Bengal are not in favour of the new policy as the rates at which power trading will take place will now be capped.

The CCEA had earlier debated the tariff policy and had referred it to a committee of secretaries. The policy has undergone various debates on issues of cross-subsidies and surcharges levied on different categories of power producers.