The Electricity Act, 2003, empowers the Union government—in consultation with the states and the Central Electricity Authority—to formulate a national tariff policy from time to time that serves as a guideline for the central and state electricity regulatory commissions while framing their regulations. The ministry of power (MoP), on May 30, released the draft amendments to the existing National Tariff Policy (NTP) that was notified in 2016 and has invited comments from stakeholders by June 20. The NTP 2016 mandates that all future requirement of power (with some minor exceptions) will be procured by distribution licensees through competitive bidding. However, the draft amendments have sought to exempt Central public sector undertakings from this requirement of carrying out the bid process, and have proposed to allow such entities to sell power by way of a cost-plus power supply arrangement.

Considering this will be an advantage to Union government power companies, it is likely that private players will seek to challenge this amendment. Many changes in the draft amendments are pro-consumer, and if the changes are notified, will certainly bring cheer to the consumers. A key change in this regard is that the draft amendments have proposed that in case of power cuts, other than due to force majeure conditions or technical faults, an appropriate penalty will be levied on the distribution company and credited to the account of the respective consumers. In another major change, the draft amendments have proposed that the benefit of reduced tariffs after assets have fully depreciated should be mandatorily passed on to the consumers. Typically, these benefits are retained by the generating companies, and do not result in a lowering of tariff, and therefore, it will be interesting to see what approach the power industry takes with respect to this proposed change.

If the changes in the draft amendments are notified, the tariff policy will make it mandatory for all distribution companies to purchase power via long-term or medium-term power purchase agreements to meet the annual average power requirement in their area of supply, failing which the distribution company’s licence may be suspended. This change will thus ensure better quality, stable power for consumers in every region and is also welcome news for stranded power assets which will have a chance to sell power through these arrangements. In the same spirit of benefiting consumers while at the same time encouraging distribution companies to be efficient, the draft amendments have proposed that inefficiencies of the distribution companies should not be passed on to the consumers, and as a result, the relevant commissions shall not be allowed to pass on more than 15% of the technical losses into the tariffs after March 2019.

This figure is proposed to be further reduced to 10% by 2022. The draft amendments also require the state commissions to notify the standards of performance of licensee with respect to quality, continuity and reliability of service for all consumers within 60 days of the issue of the amended tariff policy. In addition to the above, the draft amendments aim to align the changes in the electricity sector, among other things, by requiring the appropriate commission to shift to pre-paid smart meters (thus ensuring better billing recoveries) and providing trajectory for progressively reducing cross subsidies for consumers. The draft amendments appear to be a worthy successor of NTP 2016 with many positive changes. If the amendments are notified, they will surely benefit both, the consumer in terms of stable and reliable power at possibly lower costs, and the industry, considering the promotion of long/medium term power purchase agreements, improving billing recoveries and the like. The wrinkles in the Draft Amendments stated before may get resolved by the time the final amendments are issued.