The government has set itself on a collision course with power regulators by prescribing specific norms in its draft tariff policy. Its mandate was to just spell out the broad guidelines for setting tariffs.

Officials with the central and state power regulatory bodies say the draft, prepared by the power ministry with assistance from Crisil, "intrudes" into their jurisdiction by prescribing specific parameters like depreciation rates and incentive norms for stations.

States have written to the Centre saying the jurisdiction of their electricity regulators has been breached by the draft policy.

They pointed out that according to Section 3(1) of the Electricity Act, 2003, they should be part of the consultation process, but they were ignored in the preparation of the draft policy.

They have also alleged that the parameters spelt out in the policy protect the interest of central public sector undertakings, and power tariffs can rise by as much as 20 per cent if the norms are implemented.

"The Centre has decided to take on the role of the regulators. We will have to resort to legal recourse if it implements the policy," a state government official said.

The 21-page discussion paper floated by the ministry is markedly different from the two-page draft policy circulated by the Centre in April 2002, prescribing only the broad guidelines for tariff-setting and not specifying any financial parameters.

The latest draft, however, prescribes a 5.28 per cent depreciation rate for power plants, against the 3 per cent allowed by the Central Electricity Regulatory Commission under the present tariff norms.

The draft has also specified that depreciation should be as per Schedule 14 of the Companies Act, 1956.

In regard to recovery of full fixed costs, the draft policy has lowered plant availability requirement for availing of incentives to 75 per cent. The Central Electricity Regulatory Commission, in its tariff norms, had set it at 80 per cent.

The draft also specifies a 0.4 per cent rate of increase in incentive for every 1 per cent increase in plant load factor.

Besides, a 16 per cent pre-tax return on initial equity has been specified for generation and transmission firms, and 16 per cent returns on net worth prescribed for distribution licensees.