BERC Introduces New Draft Multi-Year Tariff Framework Regulations to Enhance Distribution Efficiency and Tariff Transparency

Introduction

The Bihar Electricity Regulatory Commission (BERC) has introduced the draft Multi-Year Tariff (MYT) Framework Regulations for 2024.[1] This framework is designed to improve the operational efficiency of power distribution and enhance transparency in tariff-setting mechanisms. These regulations, applicable to all distribution licensees in Bihar, will govern the determination of tariffs from April 2025 to the fiscal year 2027-28, or until further amendments.

Explanation

1. Multi-Year Tariff (MYT) Framework

The MYT framework is structured to provide stability and predictability in tariff determination for a defined control period, which, in this case, spans from 2025 to 2028. Licensees are required to submit forecasts of Aggregate Revenue Requirements (ARR) and expected revenues before the control period begins. The BERC will then review and approve these figures, ensuring that tariffs reflect true costs and operational conditions over the defined period.

The draft regulations also specify mechanisms for handling gains or losses arising from both controllable and uncontrollable factors. While uncontrollable factors, such as natural disasters, will lead to a direct pass-through of costs to consumers, controllable factors like operational inefficiencies will be subject to a sharing mechanism where only a portion of the loss is passed on to consumers.

2. Business Plan and Capital Investments

Licensees must file a detailed business plan, including capital investment and power procurement strategies, to ensure the infrastructure is adequate to meet demand and improve service quality. This plan must be submitted before the control period and includes demand forecasts, investment strategies, and physical targets for achieving higher efficiency.

A key focus of the draft regulations is to ensure that licensees optimize their investments to enhance productivity and meet performance standards set by the Commission. The BERC retains the right to review and scrutinize these plans to ensure compliance with efficiency norms and that investments are not excessive.

3. Annual Review and True-up Mechanisms

The draft framework introduces an annual performance review process, where the Commission will evaluate the actual performance of licensees against the forecasts submitted. A true-up mechanism ensures that any deviations, particularly in expenses or revenues, are adjusted. For instance, if operational costs exceed the forecast due to uncontrollable factors, the BERC will allow for the recovery of such expenses through tariff adjustments.

The regulations also emphasize transparency in this review process, requiring licensees to submit detailed audited accounts and supporting documents. This ensures that consumers are not unfairly burdened with costs beyond what is justified by the actual performance.

4. Tariff Transparency and Consumer Interests

One of the main goals of these regulations is to enhance tariff transparency. Licensees are required to publish detailed petitions on tariff revisions, ensuring that consumers have access to the rationale behind any changes in their electricity bills. Furthermore, the regulations mandate public consultation processes, allowing consumers and stakeholders to submit objections or suggestions before tariffs are finalized.

To ensure fairness, the draft regulations also provide mechanisms to protect consumers from excessive charges. If a licensee fails to meet performance standards or exceeds allowable losses (such as Aggregate Technical and Commercial Losses or AT&C), the excess cost cannot be passed on to consumers.

5. Operational Efficiency and Loss Reduction

Improving distribution efficiency is a core focus of the draft regulations. The Commission has introduced stricter targets for AT&C losses, which represent the difference between the energy input into the distribution system and the energy for which payment is collected. Reducing these losses is critical for both improving service reliability and lowering tariffs for consumers.

Licensees are expected to invest in infrastructure upgrades, like metering and grid improvements, to achieve these targets. The BERC will closely monitor the achievement of these efficiency gains, ensuring that any benefits are shared with consumers through lower tariffs.

Conclusion

The draft Multi-Year Tariff Framework Regulations introduced by BERC aim to strike a balance between the financial health of distribution licensees and the interests of consumers. By promoting operational efficiency, encouraging transparency in tariff determination, and holding licensees accountable for performance, the regulations offer a comprehensive roadmap for sustainable electricity distribution in Bihar. If implemented effectively, this framework has the potential to improve service quality while keeping tariffs reasonable for consumers​.

[1] https://berc.co.in/rules-requlations/regulations/draft-regulations/2828-inviting-comments-suggestions-and-objections-from-interested-parties-stakeholders-on-suo-motu-proceedings-for-berc-multi-year-distribution-tariff-regulations-2024