Editorial June 2018

Earlier, in January 2016, the government had initiated an exercise to review the Tariff Policy of 2006 and had issued several amendments to it. At the time, the biggest impact of the amendments was felt in the renewable energy segment, which saw changes such as an increase in solar RPOs to 8 per cent by 2022, the introduction of a provision for renewable generation obligation, the compulsory procurement of 100 per cent power from waste-to-energy plants by discoms, and the removal of ISTS charges for solar and wind power.

Recently, in May 2018, the government issued draft amendments to the National Tariff Policy, 2016. A number of changes have been introduced and the focus this time around appears to be on fixing the power distribution segment and making it consumer-friendly. Limiting cross-subsidies to 20 per cent from April 2019, rationalising tariff categories and providing for a direct benefit transfer mechanism for transferring subsidies are some of the key changes proposed in this version.

Further, penalties are proposed to be introduced on discoms for unscheduled load shedding. To lower tariffs, a pass-through of benefits to consumers after assets have fully depreciated has been proposed. In addition, the regulatory commissions are disallowed to the pass on technical losses of more than 15 per cent in tariffs after March 2019.

A controversial amendment introduced this time is the provision to exempt central public sector undertakings from selling power through the competitive bidding route, and instead use the cost-plus method.  Given the backlash that this provision has faced from the private sector, industry watchers say that changes are likely to be made in the proposals before the document is finalised.

That said, the remaining changes have been largely welcomed by the industry. What makes the National Tariff Policy a significant document is that it serves as a guide to the central and state regulatory commissions in drafting their regulations and hence, it is expected to have a far-reaching impact on the sector. What remains to be seen is how well these amendments can be enforced by the states.

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