Central Electricity Regulatory Commission (CERC) has issued the tariff regulations for generation and transmission projects for the period 2009-14 on 20 January 2009. The new regulations will also be the guiding principles for the State Electricity Regulatory Commissions. With the announcement of new norms CERC hopes to attract the desired investment in power infrastructure in the country while ensuring that the consumers get electricity at reasonable cost. The following are the important features of the new regulations:

•  The base rate for allowing return on equity has been raised from 14 per cent to 5.5 per cent to attract more investment.
   
•  To motivate timely completion of projects in the present period of power shortages, an additional return on equity of 0.5 per cent will be available to those projects which are commissioned within the given timelines.
   
•  By modifying the proposal in the draft regulations new hydro power projects have been appropriately insulated from hydrological risk during the first ten years of their operations. The regulations also allow enhanced free power and rehabilitation cost according to the new Tariff Policy, with the objective of expediting project implementation. Tariff for hydro power project has been restructured to incentivise supply of peaking power.
   
• Return on equity will be now pre-tax for which the base rate of 15.5 per cent will be grossed up by applicable tax rate for the company. This would incentivise investment promotion as the benefit of tax holiday will be now available to the project developer. On the other hand, consumers would not have to bear the burden of income tax on the UI earning, incentive earning and efficiency gains of the projects. This has been a major grievance of the beneficiaries.
   
•  While doing away with the advance against depreciation in line with Tariff Policy, depreciation rates have been reworked to take care of repayment of debt obligations of the new projects. However, once the initial period of 12 years is over, remaining depreciation would be spread over the balance useful life to keep the tariff reasonable.
   
•  Regulatory philosophy of CERC has been to incentivise efficiency gains and to periodically pass the improvements to beneficiaries. Accordingly, the availability target for recovery of fixed cost for thermal power plants has been raised from 80 per cent to 85 per cent. For the new units, operating margin of only 6.5 per cent will be permitted with respect to the design heat rate.
   
•  CERC has decided to set up capital cost benchmarks for thermal power projects and transmission projects. The provisional tariff has been done away with and the companies will get final tariff upfront.
   
•  The companies operating thermal power plants will have now two options. Either they can claim a special allowance on the basis of per MW per year after completion of normative useful life of the project and will be obligated to deliver the norms set for availability and operations. Second option is to go for comprehensive R&M which is to be permitted by Commission on the basis of detailed cost benefit analysis including the efficiency gains to the beneficiaries.
   
•  The incentive available to the generating companies will now be available on the basis of declared availability instead of plant load factor because the generators can only declare better availability and actual schedule is not within their control.