The federal government has unveiled draft amendments to the Electricity Rules, 2005, to bridge the gap between power costs and approved tariffs set by states, and address regulatory assets in the power sector.
According to the government announcement, the move is intended to bolster the power sector’s financial sustainability and provide relief to struggling power distribution companies burdened by mounting losses.
Under the proposed amendments, any existing gap between the approved annual revenue requirements (ARR) and estimated revenue will be liquidated in a time-bound manner. The gap, along with carrying costs at the base rate of the late payment surcharge, will be cleared in a maximum of three equal yearly instalments from the next financial year.
To mitigate such gaps and encourage cost-reflective tariffs, the proposed rule suggests capping any difference between the approved ARR and estimated revenue at 3% of the approved ARR. In some states, these gaps have widened to 20% or more. The proposed amendments also address issues related to open access in the power sector. The second key amendment seeks to cap the open access charges imposed by states, a feature mandated by the Electricity Act, 2003.