BW Communities

Repricing The Grid

BW Online Bureau Nov 08, 2014

<?xml version="1.0" encoding="UTF-8"?><root available-locales="en_US," default-locale="en_US"><static-content language-id="en_US"><![CDATA[Bright Idea? The move that has upset power traders may help power-deficit states (Pic By Sanjay Sakaria) The Central Electricity Regulatory Commission (CERC) has begun tightening its hold over runaway prices charged by power-surplus states to power-deficient states. Under new Chairman Pramod Deo, CERC has even suggested the extreme step of capping the price at which power can be traded. BW had earlier reported (see ‘Unregulated Profits’, BW, 18 August 2008) that power trading between states has been under the government’s scanner and discussions are still underway on this. In a separate move, in the first week of September, CERC proposed several regulatory measures in a staff paper, ‘Cooling down the prices of electricity’. The most prominent measure is a price cap of Rs 5 per unit for inter-state sale by distribution licencees, trading licencees and power from hydro electricity/domestic coal/imported coal-based power stations. The regulator has also suggested a price cap of Rs 6 per unit during peak demand in the evening. Power deficit states such as Haryana — which barely has a capacity of 2,200 mw but faces a peak demand of over 3,000 mw — have been at the receiving end of runaway prices. Says Haryana Chief Minister Bhupinder Singh Hooda, “When demand is far in excess of supply, the state is forced to purchase power at a tariff of Rs 9 per unit.” He says he has taken up the matter with the Centre and expects some relief. CERC’s Deo says the issue of a price cap on trading is expected to be discussed with stakeholders in detail later this month. Any form of price cap has never gone down well with power traders. “This is an absurd thought,” says a senior executive from Power Trading Corporation. “Price cap may be resorted to in exceptional circumstances, for the short term to curb a volatile market. Any attempt to administer the price will kill the fledgling market.” One reason being attributed to high prices is that traded power is being benchmarked with unscheduled interchange (UI) charges, for unplanned transaction or exchanges of power. UI charges, by nature, are always high (Rs 8 to even Rs 10 per unit) as a punitive measure to ensure grid discipline (similar to being charged Rs 1,000 for over-speeding in a car). However, it is an anomaly that the regulator wants to remove. Apart from power trading, CERC has also suggested changes in the components of calculating power tariffs. For instance, a price of, say, Rs 2 per unit from a power plant is derived after taking into account several factors such as return on equity, debt servicing liability, operation and maintenance costs (O&M), inflation, forex cover and depreciation. The basic premise for a relook at the tariff calculation methodology, according to CERC, is to ensure reasonable price for electricity, while facilitating sufficiency of supply through adequate inducements to the investors. Take, for instance, O&M costs. The regulator says that tariff calculations should also incorporate “reasonable compensation for pay hike for employees”. Considering that power utilities across the country employ lakhs of employees, these measures would ensure state-owned utilities do not turn to the exchequer every time there is a demand for pay hikes or bonuses. However, it is yet to be seen whether these would spur a rise in retail tariffs, which always turns out to be a political decision in the end. bw(dot)editor(at)abp(dot)in (Businessworld Issue 16-22 Sep 2008)