Discussion on Multi Year Tariff By Vivek Sharma

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Discussion on Multi Year TariffBy Vivek Sharma
Manisha Kabra
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Structure

• MYT The Concept
• Rationale for MYT
• Benefit of MYT
• Enabling Environment
• Draft tariff policy
• Experience in South Asia
• Issues in Implementation

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MYT The Concept a new system where the
tariff setting exercise is done for a number of
years in one exercise, termed as MYT

• Concept of MYT can mean several things ranging
  from
• Prescribing the actual numbers
• Adherence to certain specific benchmarks that
  will prevail for a number of years.
• It can also govern the principles governing the
  input costs and output prices at two different
  ends.

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Rationale for MYT

• The present system of annual determination is too
  flexible giving considerable freedom to arbitrary
  decision making.
• Average time taken 3-6 months
• It is an answer to make the tariff setting
  exercise more predictable.
• To ensure that costs are recovered in a more
  mechanistic manner.

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Benefits of MYT

• Reduction in regulatory effort on the part of the
  commissions , utilities.
• Reduction in regulatory uncertainty
• Provision of a transparent and stable system of
  incentives.
• Will lead to greater private sector interest in
  investment in the power sector.

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Enabling Environment

• Pakistan
• Privatisation Commission
• Government guidelines to NEPRA
• India
• The Electricity Regulatory Commission Act, 1998
• The Electricity Act 2003 (61 f)
• Draft tariff policy

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India-Draft tariff policy Broad principles of
tariff setting

• To mitigate the risk related to data
  uncertainity, State Commissions
• Use ATC losses
• Ensure 100 metering
• SERC to design incentive/disincentive for this
• SERC should lay down a methodology for estimation
  of agricultural consumption
• Initiate action for verification of system losses
  including agricultural consumption, Base year
  operating expenses, Capital expenditure plan

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Cont.

• Mitigation of risks related to regulatory
  uncertainty
• SERC to decide time frame for implementing
  price-cap regulation
• SERC to determine (Control period 3-5 years)
• Principles of risk sharing (between the utility
  and the consumers
• Definition of controllable and uncontrollable
  expenses for the utility
• Parameters and principles for incentives/
  disincentives
• Opening levels of key parameters
• Customer service standards to be met by the
  utility

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Experience in South Asia

• India
• Pakistan

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• Most commissions experimented with multi-year
  targets related to TD losses collection
  efficiency
• Uttar Pradesh
• Incentivising framework adopted .
• In 2000-01 UPPCL proposed reduction in TD
  losses from 36.5 to 17.5 over the next
  decade
• Losses decreased marginally from 41.55 to
  41.4.
• Multi-year path laid down previously by UPERC
  had to be revised

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Maharashtra- Loss sharing

• Implicit adoption of MYT - targets indicated in
  Tariff Order of 2000
• Against mandated loss reduction to 26.89, losses
  were reduced to only 39.4.
• MERC held consumers equally responsible for
  losses - cost of excess losses to be borne
  equally by MSEB and consumers

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Delhi

• Delhi Vidyut Board proposed long-term principles
  for tariff determination in 2001-02
• DERC -sector was not mature for the introduction
  of MYT
• Government notification - MYT incorporated in
  privatisation process
• Bidding criteria reduction in loss levels
• Negotiated losses were accepted
• Incentivising framework of multi-year tariffs
• Only one discom were unable to achieve targets

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Pakistan - Karachi

• Supported by Govt. of Pakistan - Reasons included
  privatization
• NEPRA approved MYT in Sept. 2002
• NEPRA considered price-cap as an appropriate way
  of maximizing incentives
• Allowed a price capped multi year tariff with
  adjustments for inflation, Fuel price, power
  purchase.

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Cont.

• Indexation (CPI - X) allowed on annual basis.
• Fuel and power purchase adjustment allowed
  quarterly.
• Sliding scale profit sharing mechanism.
• No loss sharing.
• Price control period is 7 years

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Issues in implementation of MYT

• Availability of reliable information
• Regulatory process cannot wait for perfect
  information, which given its external position,
  it can never obtain.
• However, reliable and timely information is an
  imperative, and all steps should be taken to
  achieve this.
• Sharing of downward and upward targets
• Controllable and non-controllable costs

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Cont.

• Government Subsidy
• Phased out our the period of time.
• What should be the Control period?
• Needs preparedness and involvement of all
  participants.
•  

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Thank You