HYDRO INTERSTATE TARIFF REGULATORY ISSUES WITH KARNATAK AS REFERENCE

Jurisdiction. The state regulators other than the parent state where the projects are located can determine the tariff as per Section 64 (5) of the Electricity Act, 2003 provided all the power is being bought by the ELECTRICTY SUPPLY COMPANY (ESCOMs) of the state. In this regard Karnataka Energy Regulatory Commission (KERC) would be able to determine tariff for a North Indian state HEP as the state would be buying the entire power.

Allocation of Cost Plus Hydro Projects and IA/PPA. The Projects between 25 and 100 MW capacity and up to 500 Cr cost were permitted by policy to be allotted by the state on MOU route and has been so in the case of Many Hydro Projects in the Himalayan States HEP. The cost and time are as specified in the Implementation Agreement (IA) -as in the case of Sikkim, HP etc, and PPA as in the case of Karnataka. Hydro projects are with project specific costs and as such the tariff is to be determined by the regulator based on the costs as per the IA/PPA as reference.

Approach to tariff Determination. The regulator would determine the tariff based on the admitted capital cost derived from PPA/IA and other parameters governing the tariff, as per the State and CERC Regulations. A preliminary check is done by indexing escalation from the original project cost, subject to time delays being appropriately approved by the state. HPSEB (Himachal) even gives option to the petitioner for tariff determination on the basis of indexing, if it is accepted so, to save time for both parties.

Admitted Capital Cost. The capital cost is admitted by the regulator after due diligence. The guiding principle being that the consumer is not burdened with inefficiencies and incompetence of the promoter. Time delays would need to be formally approved by the state concerned and the cost escalation would be as adjudicated by the regulator. Once the admitted capital cost is known, the eligible tariff can be arrived at by the formulae as given by the State/ Centre which are available for computation.

The regulator would typically start from the approved project cost under the allocated heads and compare completed cost under the same heads and seek reasons for escalation and justification. The expenses would be admitted as deemed appropriate by the regulator after due diligence. This is at the heart of all tariff determination and the key challenge and the risk.

Major Steps in Tariff Determination.

Public Hearing. The public hearing would be held after disclosing to the public the gist of the tariff petition by publishing in two English and two Hindi/State language news papers as also by putting up on a web site. The queries raised by the stake holders including NGOs would need to be satisfactorily answered before the case is progressed by the regulator.

Validation of the tariff Petition. The regulator would undertake the validation of the petition from all aspects.

Provisional Tariff and PPA.  The regulator would direct the distribution licensee to enter in to a PPA with provisional tariff to be finalized after the tariff petition.

Final Order and Tariff.  The Regulator would provide the final order and tariff typically between 6 months to one year from the tariff petition, subject the time consumed during public hearing.

Relevant Issues.  The public hearing will often determine the time line and trend of tariff. One of the problems faced by many projects is when the promoters subsidiary firm is executing the projects which could come out during a public hearing which is a clear case of conflict of interest and would necessarily call for a detailed scrutiny. There is also the consequential penalty of promoter losing credibility and being branded as just another Indian promoter trying to exploit the system.

Final Tariff. The tariff determined by CERC or KERC would give a tariff to cover the repayment of  Loan and a reasonable return to the investor, as a guiding principle, provided the promoters are seen to be transparent and forthright.