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MERC Retains Proposed Increment in License Fees for Discoms in Maharashtra

Maharashtra Electricity Regulatory Commission has decided to retain the proposed increment in the annual licence fees payable by distribution licensees from 0.05 percent to 0.1 percent and will be applicable from April 1, 2025.

September 20, 2024. By Mrinmoy Dey

The Maharashtra Electricity Regulatory Commission (MERC) has introduced a significant amendment to its Transaction of Business and Fees and Charges Regulations for 2024. These revisions, laid out in the recently approved First Amendment to the MERC Transaction of Business and Fees and Charges Regulations, are aimed at adapting to the evolving needs of the state's electricity sector and the increasing workload faced by the Commission.

One of the major changes proposed in this amendment is the increase in the annual license fees payable by distribution licensees. Previously set at 0.05 percent of revenue, excluding taxes and duties, from the wheeling and sale of electricity, the fee has now been raised to 0.1 percent. Additionally, the minimum licence fee has been revised from INR 2 lakh to INR 5 lakh.

The draft amendment was circulated to stakeholders on August 5, 2024, inviting comments and objections. Prominent stakeholders such as Maharashtra State Electricity Distribution Company Ltd. (MSEDCL), Adani Electricity Mumbai Ltd. (AEML-D), Tata Power Company Ltd. (TPC-D), and EON Kharadi Infrastructure Pvt Ltd. expressed concerns over the sharp increase in fees. Many highlighted the potential burden on consumers due to the increased operational costs that could translate into higher electricity tariffs.

In its submission, AEML-D pointed out that the recent increase in licence fees (from 0.02 percent to 0.05 percent) had already led to a significant rise in costs, and the new amendment would further double their fees, bringing it to approximately INR 8.79 crore. AEML-D requested the Commission not to increase the Licence fee significantly or soften the proposed increase.

MSEDCL echoed similar concerns, stating that their licence fee had risen sharply from INR 14.7 crore in FY 2022-23 to over INR 45 crore this year. With the proposed amendment, this could escalate to INR 100 crore. They urged the Commission to retain the previous fee structure or cap the maximum licence fee at INR 50 crore.

EON stated that the high charges associated with distribution licence fees place an unnecessary financial burden on consumers. “These excessive fees can lead to increased operational costs, which ultimately get passed on to the consumers in the form of higher tariffs. EON requested the Commission to set the licence fee for distribution licenses at a minimum of INR 2,00,000,” noted the statement of reasons.

TPC-D requested the Commission to consider the gradual increase in the annual Licence fees for the Distribution Licensees.

However, the Commission has decided to retain the existing provision in the Draft Amendment. In its statement of reasons, MERC justified the increase by emphasising the need for more resources to manage the growing complexities in the electricity sector. The Commission pointed out that the regulatory workload has increased substantially due to the evolving legal and technical challenges and the need for more studies and regulatory oversight.

Furthermore, the Commission highlighted that this fee structure is necessary to strengthen its infrastructure, improve digital initiatives, and enhance professional services, ensuring better regulatory decision-making in the interest of consumers.

The Commission also explained that while the fee increase appears steep in the short term, it is consistent with the historical trajectory. The fees had been reduced to 0.02 percent in 2017 but have now been restored to their earlier level of 0.05 percent, and the current hike to 0.1 percent is necessary to cover the Commission’s rising expenses, including rent, consultancy fees, and legal costs.

“The Commission accepts the submission of AEML-D as revised Licence Fees shall commence from and coincide with the new MYT control period commencing from FY 2025-26. In any case, the Distribution Licensees have already paid the Annual Licence Fees for FY 2024-25 based on the principal Regulations and next the Licence Fees shall be payable for FY 2025-26 commencing from April 1, 2025,” noted the statement of reasons on the applicability of the amendment.

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Policies & Regulations

Maharashtra Electricity Regulatory Commission

Adani Electricity Mumbai

MSEDCL

Tata Power Company

EON Kharadi Infrastructure