In a major regulatory overhaul, the Karnataka Electricity Regulatory Commission (KERC) has finalized the “Karnataka Electricity Regulatory Commission (Multi Year Transmission, Distribution and Retail Supply Tariff) Regulations, 2024.” Issued under notification No. DD(Tariff)/2023-24/FTS-1345/252 on June 24, 2024, and subsequently published in the Official Gazette on July 4, 2024, the framework consolidates disparate existing rules into a single, comprehensive regulatory code for transmission, distribution, and retail supply. The notification marks the transition from the draft phase to a settled multi-year tariff (MYT) framework aimed at providing long-term tariff certainty and facilitating capital planning for the state’s utilities.
Stated Objectives and Regulatory Authority
The Commission exercised its powers under Section 181(1) and clauses (zd), (ze), and (zf) of Sub-section (2) of Section 181, read with Sections 61, 62, and 86 of the Electricity Act, 2003, and the Karnataka Electricity Reform Act, 1999. The preamble outlines several strategic objectives:
- Framework Consolidation: Merging “Tariff Regulations” and “Terms and Conditions for Determination of Tariff” for transmission and distribution into one unified document.
- Predictability: Ensuring consumers have foresight regarding electricity charges, thereby enabling informed financial planning.
- Standardization: Aligning state procedures with the “Model Regulation for Multi Year Distribution Tariff” finalized by the Forum of Regulators (FOR).
Mandatory Tariff Based Competitive Bidding (TBCB) Framework
Part VI of the regulations introduces a mandatory shift toward Section 63 Bidding for significant infrastructure.
- ₹100 Crore Threshold: All new Intra-State Transmission Projects with an estimated cost of ₹100 Crore and above must be executed via the Tariff Based Competitive Bidding (TBCB) process.
- Administrative Oversight: An empowered committee, constituted by the Government of Karnataka, will coordinate the bidding process in strict adherence to Ministry of Power (MoP) and Government of India (GoI) guidelines.
- Section 62 Exceptions: Projects of a critical nature (e.g., those serving Defense, Railways, or Airports) or those with complex ownership interface issues may still be implemented through a Cost-Plus Approach under Section 62, provided they receive prior Commission approval.
- Project Packaging: Independent transmission projects, including associated upstream or downstream components, must be designed as a single unit for bid invitations.
Technical and Financial Benchmarks
The 2024 regulations establish rigorous financial and technical performance standards for all licensees.
- Capital Structure: A mandatory Debt:Equity ratio of 70:30 is prescribed. Any equity exceeding the 30% threshold will be treated as a loan for tariff determination purposes.
- Return on Equity (RoE): Transmission Licensees are permitted an RoE of 14% per annum, while Distribution Licensees (ESCOMs) are allowed 15.5%. These rates are to be grossed up with the applicable Minimum Alternative Tax (MAT).
- Transmission Performance and Incentives: To recover full transmission charges, licensees must maintain a Target Availability of 98.50%. However, Regulation 42 introduces an Incentive Mechanism for performance exceeding this target, allowing for additional recovery up to an availability cap of 99.75%.
- Filing Deadlines: Licensees and the SLDC must file their Multi-Year Tariff Petitions by November 30, at least 120 days prior to the start of the Control Period.
Operational Factors and O&M Indexation
The regulations differentiate between uncontrollable and controllable factors to manage the pass-through of gains or losses to consumers.
- Uncontrollable Factors: Includes variations in power purchase costs (hydro-thermal mix), sales volume, interstate transmission losses, force majeure, and changes in law or taxes.
- Controllable Factors and Technical Precision: Includes O&M expenses, finance charges, depreciation, and AT&C losses.
- Inflation Indexing: Operation and Maintenance (O&M) expenses will be escalated based on an inflation rate adopting a CPI:WPI ratio of 80:20, calculated using the previous ten financial years of data.
- Efficiency Mandate: For all ESCOMs, a 1% Efficiency Factor (Regulation 51.3) will be applied when calculating O&M expenses to incentivize leaner operations.
- Regulatory Assets: Notably, Regulation 59.1 confirms that the Cross Subsidy Surcharge (CSS) formula explicitly accounts for the cost of carrying Regulatory Assets, a critical factor for utility liquidity.
Structural Transparency and SLDC Obligations
The framework mandates increased transparency for the State Load Despatch Centre (SLDC) and utility filings.
- SLDC Accounting: Under Regulation 45, if the SLDC is administered by the State Transmission Utility (STU), the utility must maintain separate accounts for the SLDC. This ensures no cross-subsidization of costs and provides clarity on the charges payable by distribution licensees and open access customers.
- Public Consultation and Digital Transparency: Interested persons have 30 days to file objections (in six copies, supported by affidavit). Crucially, Regulation 11.9 mandates that licensees host their applications on their websites in a “downloadable spreadsheet format.” This file must include all underlying assumptions, formulae, calculations, and software macros, allowing stakeholders to conduct a granular review of the filing.
Control Period
The Control Period is defined as a multi-year block of three financial years, officially commencing from FY26. The Commission retains the power to adjust this duration as necessary for future cycles. These regulations supersede all previous KERC Tariff Regulations (2000 and 2006).
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