With the purchase price of short-term power showing a steep rise this year, already touching double digits in some trades, the Central Electricity Regulatory Commission is mulling a cap on the price of such power to tame profiteering.

Short-term power, defined as power purchase contracted for less than a year, accounts for 4-5 per cent of the overall market for power. Contracts are concluded either bilaterally, between sellers and buyers, or through power traders as intermediaries.

Price-capping could be a controversial move as it could choke investments in the power generation sector, according to industry officials.

As a first step, the CERC will float a consultation paper on the pricing of short-term power in the next few days.

"We have the power to cap (under Section 62) prices, but is that the right solution? That is the question that the consultation paper will throw up," CERC Chairperson Pramod Deo told Business Standard.

The commission will seek comments from all interested and affected parties, which will be followed by public hearings some time next month.

Power-deficit states like Punjab and Haryana have been complaining about their rising bill for short-term power.

The purchase price of short-term power in Haryana for instance has gone up from Rs 2.57 per unit in 2004-05 to Rs 6.55 per unit in 2007-08. Taking cognisance of the increasing cost of power, the Haryana Electricity Regulatory Commission allowed a higher tariff from the current month.

In Punjab, almost a third of the overall power purchase cost will be used to purchase 13 per cent power (short-term) in the current year.

The buyers of this power are mostly north Indian states, as well as states like Maharashtra. West Bengal has also been a buyer in the recent past.

In contrast, the price of long-term power has been decreasing. It ranges from Rs 1-3 per unit, in the case of coal-based units.

For instance, the levelised tariff for power from the ultra mega power project at Sasan is Rs 1.20 per unit (pithead coal-based), while it is Rs 2.26 for power from the Mundra project (imported coal-based). Prices are higher for plants using more expensive fuels like gas.

"There is no justification for this increase in prices. The cost of fuel has not gone up so much," said another official at the commission.

However, this high price has encouraged all types of power (read expensive power) into the grid, which is required when dealing with a shortage situation. "Capping could see costly generation going out of the grid, which could worsen the demand-supply gap," said the official.