Discussion on Multi Year Tariff
By
Vivek Sharma & Manisha Kabra
Structure
MYT – The Concept
Rationale for MYT
 Benefit of MYT
 Enabling Environment
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Draft
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tariff policy
Experience in South Asia
Issues in Implementation
MYT – The Concept
“ a new system where the tariff setting exercise is
done for a number of years in one exercise, termed
as MYT”
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Concept of MYT can mean several things
ranging from:
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Prescribing the actual numbers
Adherence to certain specific benchmarks
that will prevail for a number of years.
It can also govern the principles governing
the input costs and output prices at two
different ends.
Rationale for MYT

The present system of annual determination is
too flexible giving considerable freedom to
arbitrary decision making.
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Average time taken: 3-6 months
It is an answer to make the tariff setting
exercise more predictable.
To ensure that costs are recovered in a more
mechanistic manner.
Benefits of MYT
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Reduction in regulatory effort on the part
of the commissions , utilities.
Reduction in regulatory uncertainty
Provision of a transparent and stable
system of incentives.
Will lead to greater private sector interest
in investment in the power sector.
Enabling Environment

Pakistan
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Privatisation Commission
Government guidelines to NEPRA
India
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The Electricity Regulatory Commission Act,
1998
The Electricity Act 2003 (61 f)
Draft tariff policy
India-
Draft tariff policy: Broad principles of tariff
setting

To mitigate the risk related to data
uncertainity, State Commissions:

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Use AT&C losses
Ensure 100% metering
SERC to design incentive/disincentive for this
 SERC should lay down a methodology for estimation
of agricultural consumption

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Initiate action for verification of system losses
including agricultural consumption, Base year
operating expenses, Capital expenditure plan
Cont.

Mitigation of risks related to regulatory
uncertainty
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SERC to decide time frame for implementing price-cap
regulation
SERC to determine (Control period = 3-5 years)
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Principles of risk sharing (between the utility and the
consumers
Definition of controllable and uncontrollable expenses
for the utility
Parameters and principles for incentives/ disincentives
Opening levels of key parameters
Customer service standards to be met by the utility
Experience in South Asia

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India
Pakistan
Most commissions experimented with multi-year targets
related to T&D losses & collection efficiency
Uttar Pradesh
Incentivising framework adopted .
 In 2000-01 UPPCL proposed reduction in T&D losses
from 36.5% to 17.5% over the next decade
 Losses decreased marginally; from 41.55% to 41.4%.
 Multi-year path laid down previously by UPERC had to
be revised

Maharashtra- Loss sharing
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Implicit adoption of MYT - targets indicated
in Tariff Order of 2000
Against mandated loss reduction to 26.89%,
losses were reduced to only 39.4%.
MERC held consumers equally responsible
for losses - cost of excess losses to be borne
equally by MSEB and consumers
Delhi
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Delhi Vidyut Board proposed long-term principles
for tariff determination in 2001-02
DERC -sector was not mature for the introduction
of MYT
Government notification - MYT incorporated in
privatisation process
Bidding criteria: reduction in loss levels
Negotiated losses were accepted
Incentivising framework of multi-year tariffs
Only one discom were unable to achieve targets
Pakistan - Karachi
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Supported by Govt. of Pakistan - Reasons
included privatization
NEPRA approved MYT in Sept. 2002
NEPRA considered price-cap as an
appropriate way of maximizing incentives
• Allowed a price capped multi year tariff
with adjustments for inflation, Fuel price,
power purchase.
Cont.
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•
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Indexation (CPI - X) allowed on annual
basis.
Fuel and power purchase adjustment
allowed quarterly.
Sliding scale profit sharing mechanism.
No loss sharing.
Price control period is 7 years
Issues in implementation of
MYT

Availability of reliable information:
Regulatory process cannot wait for perfect
information, which given its external position,
it can never obtain.
 However, reliable and timely information is an
imperative, and all steps should be taken to
achieve this.
Sharing of downward and upward targets
Controllable and non-controllable costs
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Cont.
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Government Subsidy
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Phased out our the period of time.
What should be the Control period?
Needs preparedness and involvement of
all participants.
Thank You