The MERC vide its public notice dated 28th May 2019, invited comments and suggestions on the “Draft Multi Year Tariff (MYT) Regulations, 2019.” The MYT regulations lay out the principles for tariff determination and also stipulate various performance norms and standards. Thus, they play a crucial role in terms of shaping not just consumer tariffs, but also the sector performance. Many of the proposed changes are similar to the MYT regulations, 2019 recently notified by the CERC for the period of FY19 to FY24.

Given that the principles and processes for determination of tariffs, cost trajectories, performance norms and principles for pass through of costs for all licensees and generating companies will be on the basis of the finalised regulations, transparency in the public consultation process is crucial. To further this, the Commission should observe due public process to enable stakeholder consultations and also publish all stakeholder comments. The final notification should be accompanied with a detailed statement of reasons, as it would also help in reducing ambiguity in the interpretation and implementation of the regulations.

Further, there is no publicly available analysis of how the companies have performed vis-à-vis the norms decided in the last MYT control period. Lack of such data in public domain makes it difficult for the public to assess the effectiveness of the existing regulations and the kind of measures needed to improve the same. Therefore, it is suggested that before undertaking public hearing, the Commission should direct all the regulated entities to submit detailed performance and compliance data as per formats that it considers appropriate.

The proposed MERC MYT regulations have many progressive and desirable provisions, which should be retained and strengthened in the final notification. Some examples of this include: ensuring all future capacity addition is undertaken through competitive bidding, explicit disallowance of certain costs such as recovery of fuel surcharge on account of disallowed T&D losses, costs arising on account of delays and other inefficiencies, specification of financial prudence in the context of generation and capital expenditure, etc.

While many of the provisions from the 2015 regulations have been retained, some extremely important provisions have been removed in the proposed draft regulations. These include: removal of mandate for submission of ten year power procurement plan and removal of explicit requirement of public process for approval of new PPAs. Given the importance of power purchase cost which accounts for 70-80% of total cost of supply, we feel that these crucial provisions should be retained and in fact strengthened.

With the increasing cost of supply of power, rising competitiveness of alternate supply options for large consumers and increasing financial losses of utilities in the state, there is a need for urgent action in the sector to enable efficient operation. The Commission can use this opportunity to initiate processes towards tariff reforms to ensure that utilities, especially the distribution companies, are able to cope with the major sectoral shifts initiated by the inevitable shifts in market and technological developments. Many of these measures would imply substantial but necessary changes in operations and should be done with extensive stakeholder consultation in the coming years. Some measures in this regard are discussed in the attached submission.