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The Delhi electricity regulatory commission is planning to revert to a power tariff structure that prevailed till June this year. This is aimed at reducing the economic burden on domestic consumers.

Much of this has to do with populist pressures against increases in tariffs ordered earlier. Any rollback that dilutes revenues is, per se, not advisable. It points to the regulator succumbing to such pressures, either from the political class or directly from the electorate.

In Delhi, tariffs had not been raised for several years. Finally, in 2010, strangely, the regulator suggested a 25% drop in tariff. The private distribution companies (discoms) then rushed to the courts for cover.

The move was stayed. This entire process led to a tariff review only early this year. The pendulum swung the other way with a new regulator adopting an aggressive tariff clawback strategy. Tariffs have been raised twice this year, both times over 20%, on the back of steep rise in power purchase costs.

However, it is not as if the regulator has morphed into a calculating machine; there still remains a tariff gap. Nevertheless, consumers have faced sudden increases in tariffs in the last few months.

Their anger at having to suffer a sharp rise in bills is now being doused by a rollback that the regulator hopes to effect in coming days. This is unhealthy. There are many lessons from this experience.

In the first place, the tariff shock would not have been as severe had the regulator not got into reverse gear in 2010. Secondly, with the damage done, the regulator did well to undertake a steep clawback. However, it should now desist from any rollback, especially since the distribution companies have more or less kept to the loss reduction targets set for them.

A tariff reversal has a negative knock-on effect, as it sets a precedent for regulators in other states to compromise their tariff orders. This is dangerous, especially now that steep tariff hikes are required in most states over the next few years on an annual basis for the sector to revive.

If at all, it is the job of the state government to soften any tariff blow through subsidies that it ought to bear from its budgetary resources: It is not the problem of the regulator. A tariff reversal reduces the incentive for state governments to push state-owned distribution companies to apply for regular tariff revisions and should be resisted.

Should tariffs be reviewed on the basis of populist demands? Tell us at views@livemint.com

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