Power regulators for policy changes to lower tariffs

Electricity regulators have highlighted “irrationalities” in the government policies governing the country’s power sector and suggested some corrections that, according to them, can substantially reduce consumer tariffs.A report by Forum of Regulators, which consists of all electricity regulatory bodies in the country, has made many suggestions, including regulating returns on equity for railways and lowering the return on equity allowed to regulated power projects to 14% in view of low interest rates, to bring down electricity tariffs. The report on ‘Analysis on factors impacting retail tariff’ suggested appointing a coal regulator to stem inefficiencies in the sector. It made recommendations to change policies on coal supply, railway freight, transmission costs, environmental norms for power plants, and power markets optimisation.“There has been an increase of 40% in the railway freight charges in the past four years,” it said. “The increase in freight charges has been unbridled and significantly higher than what WPI/CPI (wholesale and retail inflation) could justify. It is suggested that the RoE for railways be regulated.” The report has been published on the website of Forum of Regulators and conveyed to the Union power ministry.Interestingly, the Centre has often alleged that power regulators are playing in the hands of state governments and are responsible for woes of the sector, particularly in the power distribution space.As per the report, the annual impact of coal cess on the power sector has been around ₹25,000 crore during the last three years. A reduction in clean energy cess of Rs 100 per tonne would lead to a saving of about 6 paise per unit, it said.It said the average contribution of coal price in power cost is 25%, rail freight at 41%, road transportation charges at 11%, clean energy cess at 11%, and others at 12%.If power plants’ RoE was reduced from 15.5% to 14%, there would be a reduction of 2 paisa per unit of retail tariff and if it was reduced further to the level of 12%, it will lead to a reduction of 7 paisa per unit of retail tariff, it said.The report has suggested discontinuing ₹400 per tonne clean energy cess or ploughing back the amount to the power sector to mitigate environmental costs.It said electricity regulators should be allowed to monitor calorific value of coal received by power plants and efficiencies of the projects. Also, 100 Kcal per kilogramme saving in gross calorific value of coal would translate into a saving of energy charges in the range of 3%.

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