The state commissions are responsible for determination of tariff for distribution licensees (Discoms). In the state of Uttar Pradesh, the UPERC oversees determination of the tariffs for Discoms, whereas in the state of Delhi, it is the DERC. According to tariff regulations, the tariff is calculated using a Cost-Plus methodology. Cost Plus suggests that the tariff is calculated in such a way as to recoup all expenses incurred by the Distribution Licensee and to include a certain sum as a return.
Before determining tariffs, the Electricity Act also mandates stakeholder consultation, informational sessions, and public hearings. To avoid unduly burdening of consumers, the tariff determination procedure is carefully examined under regulatory caution and strict scrutiny.
Q) What is the regulatory framework for tariff determination under the Act?
To begin with, the respective state commission is obligated to specify the terms and conditions for determination of tariff and provide a regulatory framework for the distribution companies. The regulatory framework serves as the foundational principle for preparing and submitting a tariff petition to the commission. While determining tariffs and to ensure that the cost of electricity is fairly recovered, the state commissions take into consideration the regulations, compliance with previous rulings and directives, and protection of consumer interests.
Q) What is the procedure for obtaining a tariff order?
The primary step for tariff determination is filing of a tariff petition or an ARR petition by the Discoms. In this petition, the proposed tariff, and an estimate of the total income requirements—including Power Purchase Costs, O&M Expenses, Capital Investments, etc.—are provided. The petition also offers a thorough analysis of the Discoms’ financial, operational, and technological position[1]. In Uttar Pradesh, Discoms file tariff petitions or ARR petitions in the UPERC which are then reviewed.
After filing, the petition undergoes a strict review by the state commission. If under review, any clarifications, missing information, or data gaps are observed, the Discoms are asked to clear such ambiguities. Thereupon, a Technical Verification Session (TVS) is organised where businesses submit a new petition for admission by the commission, with advised changes. Although there are deadlines for submitting these petitions, it is frequently observed that the Discoms do not follow those deadlines.
If the petition passes through the review stage, the next step is for the state commissions to accept and admit the petition.
There are two kinds of petitions which can be submitted as part of the tariff determination procedure:
- Aggregate Revenue Requirements (ARR) Petition: An ARR petition outlines the estimated expenditure and income of the discom for the next financial year.
- b) True Up Petition: A True Up petition includes the audited reports and accounts to show the discom’s actual performance in terms of expenses, income, and technical information.
Further, after the petition has been admitted by the state commission, it is published in the public domain for inviting suggestions and opinions of stakeholders. The public can access the petition by visiting the official website of the commission and the Discoms, and in major newspapers. They are also available in all Discom subdivisions. Through advertisements and notices, customers are urged to offer feedback and comments on these petitions. [2]
Before the tariff order is finalised, public hearings with consumer participation are held. Thereafter, the tariff petition is prepared. While drafting the tariff order, concerns made by customers and comments received are considered. After addressing the fore-mentioned concerns, a tariff order is prepared and similarly, issued. The procedure for tariff determination is further explained through the chart below:
Q) What information and particulars must a tariff petition contain?
A tariff petition is a lengthy document that embodies details about the Discoms’ operational and financial capabilities. It offers an estimate of the Discoms’ projected sales and total energy needs for the upcoming financial year. It also states the sources of electricity to be used to meet those needs. Further, the petition entails the power purchase costs, operation and maintenance costs (O&M) and any other costs that will be incurred to comply with earlier tariff orders or directives of the commissions. [3]
Furthermore, certain additional details could also be included:
- response to earlier directives of the state commission
- schedule for indicative tariffs
- addition or merging of a new customer category
- treatment of carrying cost etc.
Now we shall discuss about the important particulars/chapters that can be found in a tariff petition. A True Up Petition for truing up of tariff for FY 2020-21 and an ARR Petition for the FY 2022-23 filed by Tata Power DDL has been taken as an example for reference.
- Prayer: This chapter consists of the prayers or demands put forth by the distribution licensee before the state commission through the petition.
- Operational Review: This chapter elaborates upon the actual operation and performance of the distribution company with respect to the target as indicated in state regulations/orders.
- Compliance to Directive: In a tariff order, state commission sets out certain orders and directives for the distribution licensees to adhere. This chapter consists of the compliances made by the discom with respect to such orders/directives of the state commission.
- Impact of various Judgements: This chapter envisages how certain decisions of the APTEL, the CERC or the respective state commission has impacted the business of the discom. The discoms can argue against the validity of certain judgements which have unduly interfered with its operation and performance.
- True Up for FY 2020-21: This chapter reflects the actual performance of the distributing company in terms of expenses and income, in the preceding year. The petitioner must mention in detail all aspects in which it seeks truing up.
- ARR for FY 2022-23: This chapter enlists the aggregate revenue requirement of the discom in the upcoming financial year. This is done by enlisting the projected sales and billed revenue, estimated customers for next year, estimated customer load for next year, estimated revenue at existing tariff for next year. Further, the estimated expenses and target for distribution loss etc. are mentioned as well.
- Cost of Service: This chapter mentions the costs to be incurred by the discom for supply of electricity. This could include costs like Power Purchase cost, O&M expenses, Depreciation, Carrying Cost etc.
- Tariff Rationalisation: Based on the costs incurred by the discom, this chapter essentially states that the tariff structure should be made in such a manner that the licensee’s prior recoveries, along with the total revenue to be realised, must all be covered.
- Forms: This chapter consists of all the forms and annexures to be attached with the petition.
[1] http://www.derc.gov.in/sites/default/files/IPGCL%20FY%202021-22.pdf
[2] https://cuts-ccier.org/pdf/cbec-tariff-determination-procedure.pdf
[3] https://www.tatapower-ddl.com/regulations-and-compliances/tariff-related/tariff-petitions-and-ARR
