However, in the peak demand hours, power tariffs will continue to be regulated by various government regulators in the peak demand hours. In its consultative paper on tariffs released on Thursday, CERC aims at encouraging state electricity boards to start contracting directly with suppliers, to actually learn how to manage their demand and supply loads by buying power at differentiated rates and charging consumers differential tariffs.

Over the long run, the attempt is to enable SEBs to move towards a free or price based-incentives market, with both suppliers and customers free to enter into contracts with anyone.

To ensure that SEBs immediately start reducing tariffs charged to customers, CERC has floated the idea of linking theannual hikes to the annual rate of inflation or some such index - and to build in incentives for increasing efficiency, it proposes to reduce this index by some `X' factor. In that case, a maximum annual increase could be of `WPI minus X' only, where WPI is the wholesale price index. Such a method has been used extensively in countries like the UK.

Under the Electricity Regulatory Commissions Act of 1998, CERC controls the tariff of generating companies owned or controlled by the Central government, the tariff of those companies that sell power in more than one state, the transmission of energy by Powergrid and the inter-state transmission of energy. This includes companies such as NTPC, NLC, NEEPCO, and NHPC, among the power generating companies.

CERC released its consulation paper at a brainstorming session on electricity pricing organised by the Tata Energy Research Institute (TERI). The session was co-chaired by TERI's chief R K Pachauri and CERC's chief S L Rao.