The Multi Year Tariff (MYT) regulations are performance based regulations, with due reward being given for operational efficiency and replace the present method of annual tariff determination with a multi-year tariff framework, wherein the tariffs will be allowed to change only due to change in the values of selected parameters in a pre-determined manner.

Background
The Electricity Act, 2003 (EA 2003) requires that while specifying the Terms and Conditions for determination of tariff the State Electricity Regulatory Commissions should be guided by Multi-Year Tariff (MYT) principles. Subsequent to the notification of the present MERC Tariff Regulations, 2005 certain developments have taken place, viz., CERC Tariff Regulations for the Control Period from April 1, 2009 to March 31, 2014 have been notified, and the National Electricity Policy and the Tariff Policy have been notified by the Ministry of Power, Government of India, which provide the guidelines for determination of the Revenue Requirement and tariff. The MERC also desired to incorporate the learnings of the first Control Period in the revised MYT Regulations. Hence, MERC decided to formulate the MERC MYT Regulations.

Salient Features
The MYT Regulations are Performance Based Regulations, with due reward being given to operational efficiency, and replace the present method of annual tariff determination with a multi-year tariff framework, wherein the tariffs will be allowed to change only due to change in the values of selected parameters in a pre-determined manner. One of the major problems faced by the Utility Companies, is the lack of long-term planning discipline. The MYT Regulations require the submission of a 5-year Business Plan, which will inter-alia require the Utilities to project the demand-supply scenario, the power procurement plan, and capital investments required to achieve the desired operational efficiency and meet load growth requirements over the 5-year period, rather than operating with a short-term outlook. The next Control Period of five years will commence on April 1, 2011 and continue upto March 31, 2016.
Unless the distribution licensees enter into long-term or medium-term contracts at optimum rates for the required quantum of power, there will always be a trade-off between shedding load or procuring costly power to mitigate the load shedding, which will result in higher tariffs. The objective of having a long-term plan is to ensure that load shedding is avoided to the extent practicable, and the distribution licensees ensure that adequate capacity is contracted under long-term/medium-term/short-term contracts as appropriate at optimum prices, to ensure that the consumers are supplied electricity on 24 x 7 basis, and the tariffs are also reasonable. The Investment Plan shall be a least cost plan for undertaking investments for strengthening and augmentation of the operations of the Utility, as applicable for Generation Companies, Transmission Licensees, and Distribution Licensees.
Under the MYT framework, the controllable factors and uncontrollable factors and their treatment has been stipulated. The impact of uncontrollable factors are a pass-through element in tariffs, while the impact – gain or loss – on account of controllable factors, has to be shared between the Utility and the consumers in a specified manner.
The MYT framework is based on the following elements, for calculation of Aggregate Revenue Requirement (ARR):
(i) Submission of a detailed Business Plan;
(ii) Submission of the forecast of ARR and expected revenue from existing tariffs and charges, based on the approved Business Plan, along with indexed parameters for each year of the Control Period;
(iii) The trajectory for specific variables shall be stipulated by the Commission, where the performance of the Applicant is sought to be improved through incentives and disincentives;
(iv) Mid-term review of performance vis-à-vis the approved forecast and categorization of performance variations as controllable factors and uncontrollable factors, shall be undertaken by MERC;
(v) The mechanism for pass-through of approved gains or losses on account of uncontrollable factors as specified by MERC;
(vi) The mechanism for sharing of approved gains or losses arising out of controllable factors as specified by the Commission.
(vii) Tariff will be determined for the entire Control Period at the beginning of the Control Period.
(viii) The gain or loss to the Generating Company/Licensee on account of uncontrollable factors shall be passed through as an adjustment in the tariff of the Generating Company/Licensee on a half yearly basis through the ‘Z’ factor.

The MYT Regulations have also addressed the operational norms and financial principles for the Generation, Transmission, Wires and Supply Business, including the method of giving returns (Return on Equity vs. Return on Capital Employed), separation of accounts of Wires and Supply Business, to facilitate Open Access and increase the level of competition, which in turn, will result in improved quality of supply and reduction in tariffs, as well as the distribution loss reduction trajectory, power procurement guidelines, etc.
Benefits to Consumers & Utility Companies
The MYT framework is designed to:
 Provide regulatory certainty to the Utilities, investors and consumers by promoting transparency, consistency and predictability of regulatory approach, thereby minimizing the perception of regulatory risk.
 Address the risk sharing mechanism between Utilities and consumers based on controllable and uncontrollable factors.
 Ensure financial viability of the sector to attract investment, ensure growth and safeguard the interest of the consumers.
 Review operational norms for Generation, Transmission, Distribution and Supply businesses, based on recent developments and actual performance in the first Control Period.
 Promote operational efficiency.
 Reduce tariffs in the long-term.

The copy of the detailed Approach Paper and the draft MERC (MYT) Regulations, 2010, have been uploaded on the Commission’s website, viz., www.mercindia.org.in, for public comments. Interested stakeholders may submit their comments and suggestions in writing to MERC, within

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