Reliance Infrastructure, controlled by billionaire Anil Ambani, today won regulatory approval to raise power tariff by as much as 10.22 per cent.

The move will help the utility to charge more from its 2.6 million users in Mumbai.  Reliance Infrastructure (Rel Infra) had asked asked the Maharashtra Electricity Regulatory Commission for a 4.19 per cent rise in its annual revenue requirement.

It was instead granted an increase of 10 per cent. Mumbai and its suburbs are serviced by Tata Power [Get Quote], Brihanmumbai Electricity & Suburban Transport and Reliance Energy [Get Quote]. Tata Power has a generation capacity of 1,777 mw and Rel Infra generates 500 mw.

However, with the demand varying between 2300 and 2400 mw, the city meets the shortfall by buying expensive power from other sources. The Ambani company will need to buy power from the spot market.

MERC was distributing power equitably between BEST and Rel Infra and the financial burden was also equitably shared by the organisations till last financial year, in the absence of a formal power purchase agreement between TPC and the distribution utilities.

However, trouble started after BEST signed a PPA with TPC for 800 mw, and this was approved by the power regulator in December last year.

A total of 477 mw is utilised by TPC itself for its own distribution business, leaving only 500 mw for Rel Infra. TPC supplies power directly to important installations in the city such as airport, hospitals and water works.

Rel Infra sources nearly 200 to 300 mw of expensive power on its own. The Rel Infra challenged the decision of MERC to approve the PPA between TPC and BEST, which was turned down by the power regulator. REl Infra subsequently challenged the decision of the MERC in the Appellate Tribunal of Electricity.

ATE ruled in favour of Rel Infra. The ATE's decision was challenged by TPC and BEST in the apex court. The supreme court admitted the writ petition by TPC and stayed the judgement of ATE till further orders.

While approving Rel Infra's ARR, MERC observed that  since Rel Infra will have to buy extra power at higher rates, the gap between its revenue and expenditure will be around Rs 813.14 crore (Rs 8.13 billion).

However, compensating Rel Infra for the entire amount will result in a 18 per cent increase in the consumer rates. So, the commission will increase the rates only by 10.22 per cent or Rs 457.4 in this financial year.

In response to MERC's order, Rel Infra said, "It couldn't have a PPA with the TPC as the latter was offering only 500 mw, when it was aware that suburbs require more than 700 mw.

It made all efforts to secure power from TPC by approaching MERC, ATE and other quasi judicial forums without any success.