The Tamil Nadu Electricity Regulatory Commission (TNERC) has issued draft regulations to determine tariffs for intra-state transmission systems from the financial years (FY) 2028 to FY 2032.

The Draft Tamil Nadu Electricity Regulatory Commission (Terms and Conditions for Determination of Tariff for Intra-State Transmission System) Regulations, 2026, cover aggregate revenue requirement (ARR), transmission tariff, true-up, mid-term review, annual performance review, and related matters.

Stakeholders must submit comments by June 15, 2026.

Applicability

The regulations will apply across Tamil Nadu to all existing and future transmission licensees, including the state transmission utility (STU) and its successors. They will also apply to intra-state transmission system users.

They will replace the TNERC Tariff Regulations, 2005, and the TNERC Multi-Year Tariff (MYT) Regulations, 2009, including amendments, only for intra-state transmission tariff matters.

Matters relating to annual performance review and true-up until FY 2027 will continue under the 2005 and 2009 regulations. Tariff orders issued until FY 2027 will continue under the regulations under which TNERC issued them. The 2026 regulations will not apply retrospectively.

Regulatory assets and liabilities created before the end of FY 2027, including carrying costs and recoveries, will continue to be recognized under the regulations and orders that originally determined them.

The regulations will also cover competitively selected transmission licensees for pooling and sharing annual transmission charges, performance monitoring, and recovery of statutory levies. They will apply to dedicated transmission lines or systems developed by generating companies or consumers, for which TNERC must determine or adopt tariffs or charges.

MYT Framework

The draft regulations propose an MYT framework to compute ARR and expected revenue from tariffs and charges for transmission licensees.

Transmission licensees must submit an MYT petition with forecasts of ARR, expected revenue from existing tariffs, revenue gap, and proposed tariff for each year from FY 2028 to FY 2032.

Licensees must file a mid-term review petition comparing operational and financial performance against approved forecasts for the first three years and submit revised ARR and tariff forecasts for the fourth and fifth years.

The mid-term review will include true-up for the first and second years based on audited accounts and an annual performance review for the third year.

The regulations classify performance variations as controllable or uncontrollable. Approved gains or losses from uncontrollable factors will be passed through in the tariff.

For gains or losses computed with respect to O&M expenses, subject to statutory pay revision in employee cost, two-thirds of gains will be passed on to consumers, while the licensee may retain one-third. For losses, one-third may be passed through in tariff, while the licensee must absorb the remaining amount.

Controllable and Uncontrollable Factors

Controllable factors will include variations in capital expenditure (CAPEX) due to time or cost overruns, or efficiencies in project implementation, except when caused by an approved change in project scope, statutory levies, or force majeure events. Delays caused by the licensee’s contractor, supplier, or agency will also be treated as controllable.

Other controllable factors include variations in specified performance parameters and standards, operation and maintenance (O&M) expenses excluding employee costs, intra-state transmission losses, and transmission system availability.

Uncontrollable factors will include force majeure events, changes in law, variations in return on equity subject to revisions in gross fixed assets, changes in working capital interest rates, and delays in land acquisition, forest clearances, right-of-way permissions, and railway crossings.

They will also include delays in National Highways Authority of India approvals, statutory clearances, or similar approvals not attributable to the licensee. Other uncontrollable factors include variations in long-term loan interest rates subject to a prudence check, insurance expenses, license fees, state load dispatch center charges, statutory levies, provision for bad debt, depreciation subject to actual capitalization, statutory pay revisions, income taxes, and other expenses allowed by the Commission.

The draft clarifies that statutory pay revisions include government-notified pay revisions, Pay Commission recommendations, wage settlements, or statutory revisions applicable to the utility. Other variations in employee costs, including increments, promotions, and staffing inefficiencies, will be treated as controllable.

Petitions During the Control Period

Transmission licensees must file three key petitions during the control period from FY 2028 to FY 2032.

MYT tariff petitions must be filed by November 30, 2026. They must include true-up for FY 2023 to FY 2026, the annual performance review for FY 2027, the MYT petition, and the capital investment plan for FY 2028 to FY 2032. If audited accounts for FY 2026 are unavailable, projections will be based on audited accounts for FY 2023-2025 and provisional accounts for FY 2026.

The MYT petitions must include the CAPEX plan forming part of the STU transmission plan, the financing plan, the physical targets, the ARR projections, and the proposed tariff and charges for each year of the control period. TNERC will aim to issue the tariff order by March 31, before the start of the first year of the control period.

A mid-term review petition must be filed by November 30, 2029. It must include true-up for the first two years, annual performance review for the third year, and revised ARR and tariff forecasts for the fourth and fifth years. TNERC may revise O&M expenses, CAPEX-related expenses, charges, and tariffs based on actual performance.

The true-up petition for the third and fourth years and the annual performance review for the fifth year must be filed by November 30, 2031, along with the MYT petition for the next control period. These petitions may also be filed during the control period if uncontrollable factors cause a sudden, significant, and sustained tariff increase.

ARR Determination

ARR will apply to transmission licensees whose tariffs are determined on a cost-plus basis under Section 62 of the Electricity Act. It will not apply to transmission projects implemented through tariff-based competitive bidding. However, the project’s annual transmission service charges may be considered for pooling and sharing.

The ARR for each year will include return on equity, tax on return on equity, interest on loan capital, depreciation, O&M expenses, interest on working capital, insurance, license fees, state load dispatch center and regulatory charges, and other costs approved by TNERC. Non-tariff income will be deducted.

Transmission licensees must submit a capital investment plan covering projects to strengthen the intra-state transmission system, meet load growth, improve supply quality and reliability, enhance metering, and reduce congestion. Projects exceeding ₹200 million (~$2.1 million) will require prior TNERC approval and prudence checks.

The proposed return on equity is 15.5% post-tax per annum. For assets commissioned on or after April 1, 2027, the debt-equity ratio will be 70:30 of the approved capital cost, after adjusting for assets funded through consumer contributions, deposit works, capital subsidies, or grants.

For O&M expenses, FY 2026-27 will be the base year. O&M expenses for the control period will be escalated using a normative annual escalation factor of 5.25%, adjusted for an efficiency gains factor determined by TNERC.

Capital expenditure on battery energy storage systems will not be considered part of the transmission project cost. BESS tariff and related charges will be treated separately under TNERC’s BESS regulations and may be included in transmission ARR under other costs.

Tariff-Based Competitive Bidding Integration

TNERC proposes integrating intra-state transmission projects developed through tariff-based competitive bidding (TBCB) into the MYT tariff network. Annual transmission service charges (ATSC) for such projects will be discovered through competitive bidding.

The ATSC of TBCB projects will be treated as a separate line item while computing the total transmission cost. It will not form part of the ARR determined under the cost-plus framework, but will be included in pooled transmission charges for billing and recovery from transmission system users.

TNERC will adopt TBCB project charges based on the transmission service agreement between the selected transmission service provider and the STU or designated nodal agency. These charges will generally not be reopened or revised except in cases of fraud, material misrepresentation, force majeure, change in law, or other circumstances allowed under the agreement, bidding documents, or applicable law.

The ARR of licensees and ATSC must be maintained separately for accounting, audit, prudence review, and reporting. The commissioning, transfer, or retirement of a TBCB project will not affect the ARR of existing transmission licensees. However, these developments may lead to a revision of the total transmission cost for the remaining control period.

The draft proposes a normative annual transmission system availability factor of 98% for AC systems and 95% for HVDC bi-pole links and back-to-back stations. For each full percentage point of annual availability achieved above 98%, the transmission licensee will be eligible for an incentive equivalent to 0.5% of ARR, subject to a ceiling of 2% of ARR.

Recently, TNERC issued the SLDC Functions and Accountability Regulations, 2026, mandating that renewable energy generating stations, nuclear power stations, and run-of-river hydro stations be treated as must-run stations and not curtailed except for grid security reasons.

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