CERC study supports competitive regime

Backed by the findings of a comparative analysis,the power regulator has advised the Centre not to extend the January 2011 deadline for completely switching to a tariff-based competitive regime.

The Central Electricity Regulatory Commission CERC chairman wrote to the power ministry last week that a detailed apple-to-apple comparison in 14 projects had shown that power tariffs discovered through competitive bidding are lower than the cost-plus tariffs.

The study has concluded that computed prices under the cost-plus methodology are higher than the levelised tariffs discovered under competitive bidding in respect of 12 out of 14 projects. Differences in prices too are significant, CERC chairman Pramod Deo wrote on September 16.

The ministry had asked CERC last April to consider a request by state-run National Thermal Power Corp to extend the 2011 deadline so that public sector undertakings could be allowed to set up projects on cost-plus tariff and sign power purchase agreements with distributors. Similar requests had also come from state-run NHPC Ltd and Satluj Jal Vidyut Nigam Ltd.

In June,CERC backed the competitive regime based on internal preliminary findings but promised the ministry to come back with a more detailed exercise. That exercise,now completed,has shown that consumers benefit more in a competitive regime.

Besides providing the incentive to bring efficiency and innovation,competition leads to lowering of risk for the consumers,says the report which excluded additional capital costs and high coal transportation cost usually incurred in a cost-plus regime while computing levelised tariff.

CERC said that had additional capital costs been include in the analysis,the cost-plus tariff would have been higher. Moreover,these subsequent unforeseen increase get fully passed on to the consumers in the case of cost-plus mechanism whereas similar increases in competitive is borne by the suppliers.

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Deos letter to power secretary P Uma Shankar says the January 2001 deadline could only be extended for large-sized multipurpose storage hydro projects and yet-to-be-introduced standby stations that would operate only when there are power shortages at peak eriods.

Power minister Sushilkumar Shinde has called a meeting of the Group of Ministers on Power Sector Issues on Friday to review the state of preparedness of states in switching to the competitive route.