CHAPTER 4

This chapter reviews the legislative mandate for the functions of the Commission, with respect to tariff determination, the guidelines as available in the ERC Act or as given by government policy, the regulations formulated by the Commission, the key principles it intends to use for tariff design, the objectives, which it would like tariff policy to achieve and the primary issues before the Commission in executing its mandate.

4.2 Functions of the central commission

The CERC was established by the ERC Act of 1998. The functions of the Commission are defined in section 13 of the ERC Act and are reproduced below:

a) to regulate the tariff of generating companies owned or controlled by the Central government;
b) to regulate the tariffs of generating companies, other than those owned or controlled by the Central Government specified in clause (a), if such generating companies enter into or otherwise have a composite scheme for the generation and sale of electricity in more than one state;
c) to regulate the inter-State transmission of energy including tariff of the transmission utilities;
d) to promote competition, efficiency and economy in the activities of the electricity industry:
e) to aid and advise the Central Government in the formulation of tariff policy which shall be-

i) fair to the consumers; and
ii) facilitate mobilization of adequate resources for the power sector;

f) to associate with the environmental regulatory agencies to develop appropriate policies and procedures for the environmental regulation of the power sector;
g) to frame guidelines in matters relating to electricity tariff;
h) to arbitrate or adjudicate upon disputes involving generating companies or transmission utilities in regard to matters connected with clauses (a) to (c) above;
i) to aid and advise the Central government on any other matter referred to the Central Commission by the Government;

4.3 Tariff Guidelines

Section 28 of the ERC Act, which is reproduced below, specifies the guidelines for tariff determination for the Commission. While these guidelines define the principles for tariff determination to be adopted by the Commission they are not mandatory. The Commission can depart from these guidelines though the reasons for doing would have to be recorded.

28) The Central Commission shall determine by regulations the terms conditions for fixation of tariff under clauses (a), (b) and (c) of section 13 and in doing so, shall be guided by the following, namely:-

a) the generating companies and transmission utilities shall adopt such principles in order that they may earn an adequate return and at the same time that they do not exploit their dominant position in the generation, sale of electricity or in the inter-State transmission of electricity;
b) the factors which would encourage efficiency, economical use of the resources, good performance, optimum investments and other matters which the Central Commission considers appropriate;
c) national power plans formulated by the Central government; and
d) such financial principles and their applications contained in Schedule VI of the Electricity Supply Act, 1948 as the Commission considers appropriate.