According to energy consultancy firm Mercados EMI Asia, a study for the 13th Finance Commission found cumulative losses of power distribution utilities stood at Rs. 75,000 crore at the end of March 2009 and are likely to reach Rs. 1.16 trillion at the end of March 2015. One of the key reasons was the lack of tariff revisions for many years.
The gap between average cost of supply and tariff realization has increased from 50 paisa in fiscal 2008 to 86 paisa in fiscal 2011, credit rating agency Crisil Ltd said in an October report.
In January this year, Union power secretary P. Uma Shankar wrote to ATE, asking it to invoke its powers under section 121 of the Electricity Act, 2003, and issue directions to state power regulators regarding revising tariffs on a regular basis.
The same letter pointed out that six states have not revised tariffs since 2006, four since 2007, four since 2008, nine since 2009 and six since 2010.
The ATE directive on ARRs was issued last week and published on its website.
The state power regulator should avoid delays in issuing the tariff order for a particular financial year and should do so before 31 March. The Maharashtra Electricity Regulatory Commission issued the tariff order for state government-owned power utility Mahavitaran Ltd for fiscal 2012 in the last week of October.
Since power purchase and fuel are major costs for the utilities, state power regulators should devise a formula for revising tariffs in line with changes in the prices of these items, the ATE order said. Such revisions should be carried out every month, it said.
"This is a welcome step, but the important issue is how these directives are going to be implemented," said Arvind Mahajan, executive director and head of the energy, natural resources and infrastructure practice at consultancy firm KPMG India. "However, it will help bureaucrats push their political masters to go for timely tariff revisions."
The order will have a sobering effect since not revising tariffs can jeopardize the entire sector, said a senior Mahavitaran official, who did not want to identified. Regulators not complying with ATE directives can attract contempt of court proceedings, he said.
Regular tariff revisions are welcome, but they should not become an automatic exercise for increasing charges, said Ashwini Chitnis of Pune-based think tank Prayas Energy Group. There is a need to link tariff increases with the performance of power utilities, he said.
According to the Electricity Act's section 59, all regulators are required to publish performance parameters and deliverables to consumers for various utilities, but very few have done so, Chitnis said. ATE should also take up this issue and direct the state regulators to do so, she said.