National Tariff Policy or NTP
In the draft of NTP, it is suggested that although setting the tariff ERC should introduce performance-based cost of service regulations, a clear departure from the extant "Cost+" methodology. Although introducing the above methodology, ERCs would assume introducing "multiyear tariff" (MYT) principles. Within MYT, the ERCs the utilities are encouraged to set in the initial and last values for certain controllable parameters like as loss levels, Salaries, Repair & Maintenance, etc. by a discovery and negotiation fashion (involving public hearings). Uncontrollable parameters such as power purchase costs are to be automatically passed through the tariff, every quarter or a suitable period by Fuel Surcharge Adjustment (FSA).
The review will be done through ERC regarding controllable parameters only after the end of control period that is commonly a 5 years period and not inside control period. In a few Latin American countries, this period is 10 years. Uncontrollable parameters would be permitted automatic pass by during the period.
The MYT principles, set out in the international practice, act more as a price cap rather than revenue cap. They set out the maximum which could be charged in the "RPI-X" principles (separately) for each and each function and that drives the tariff calculations.
ERCs are authorized to evolve a methodology for determining the cross- subsidy element and also for eliminating that. This means in which ERC has to decide the number of years and the quantum of reduction either year-by-year or at the end of in which period for cross-subsidy elimination. It is evident now in which the regulatory process has large implications on the several activities of the utility.