Power Transmission Tariff Models

Electricity transmission tariffs are charges for using the network that carries bulk power from generating stations towards distribution systems. Under cost-plus regulation, the regulator determines charges from admissible costs and an allowed return; under tariff-based competitive bidding (TBCB), competition determines the tariff offered by the selected transmission developer.

Cost-plus regulation

Under Section 62 of the Electricity Act, 2003, the appropriate commission determines transmission tariffs according to regulatory principles.

• The tariff generally covers approved capital costs, depreciation, interest, operation and maintenance expenses, and an allowed return on equity.
• Regulatory scrutiny and normative parameters constrain recoverable costs, so cost-plus does not mean automatic reimbursement of every expenditure.
• The developer's revenue depends on the regulatory framework, including applicable availability and performance requirements.

Tariff-based competitive bidding

Under Section 63 of the Electricity Act, 2003, the appropriate commission adopts a tariff discovered through transparent bidding conducted according to Central Government guidelines.

• Qualified bidders compete to provide the specified transmission service, with selection based on the tariff evaluation prescribed in the bidding documents.
• The selected developer receives charges according to the transmission service agreement, subject to its performance obligations.
• The bid tariff is not routinely recalculated to reimburse actual expenditure; adjustments depend on contractual provisions, such as those addressing changes in law.

Main economic differences

Cost-plus regulation relies primarily on regulatory assessment of costs, while TBCB relies primarily on competition for the project.

• TBCB generally places greater construction-cost and execution risk on the developer, creating an incentive to control expenditure.
• Cost-plus can provide investment certainty, but requires careful scrutiny to prevent inefficient expenditure from entering tariffs.
• Competitive bidding requires sound project specifications and credible competition; a low bid alone does not guarantee timely delivery or reliable service.