Electricity Regulations

• Presented by Group 11– Parag Gautam (Roll No: 35)– Saptarishi (Roll No: 44)– Vivek Aravind (Roll No: 55)– Vaibhav Pal (Roll No: 52)

Table of Content (TOC)

• Central Electricity Regulatory Commission (CERC)

• State Electricity Regulatory Commission (SERC)• Electricity Act, 2003• Tariff Policy

What do you mean by Regulation??

Oxford Dictionary

Pronunciation:/rɛgjʊˈleɪʃ(ə)n/Noun• a rule or directive made and maintained by an authority.[mass noun]• the action or process of regulating or being regulated

Why Need Regulations& Regulators for Electricity??

• To ensure consumers benefits from regulation in terms of reduced prices and better services through a competitive market in electricity supply.

• To encourage competition with respect to not only generation, but also other areas, including transmission and distribution of electricity.

• To adjudicate upon disputes involving the Generating companies and transmission utilities in matters relating to tariffs.

• To deal with matters as a quasi-judicial body relating to the tariffs, generation, transmission, distribution, and trading and use of electricity.

Central Electricity Regulatory Commission (CERC)

• A key regulator of power sector of India.• A statutory body functioning with quasi-judicial status under sec -

76 of the Electricity Act 2003.• Initiated on 24th July, 1998, under the Ministry of Power’s Electricity

Regulatory Commissions Act, 1998.• Agency executives:

– Dr. Pramod Deo, Chairperson– Mr. S. Jayaraman, Member– Mr. M. Deena Dayalan, Member

Functions of CERC:• To regulate the tariff of generating companies owned by Central

Government.• To promote competition, efficiency and economy and safety in the

activities of electrical industry.• To adjudicate upon disputes and differences between the units and

undertakings controlled by the Central Government, Independent Power Producers (IPPs) and licensees.

• To issue licenses to persons to function as transmission licensees and electricity traders with respect to their interstate operations.

• To promote the development of the power market & fix the trading margin in the interstate trading of electricity.

Evolution of Electricity Tariff and Role of CERC

• A system of Single Part Tariff was used for pricing of thermal power prior to 1992.

• The Single Part Tariff for a station was calculated to cover both the fixed cost as well as the variable cost at a certain generation level.

• The scheme of Two Part Tariff was adopted in 1992 for NTPC stations on the recommendations of the KP Rao committee.

• The scheme provided for linking of incentive and disincentive with Plant Load Factor plus deemed generation, which in effect is Plant availability.

Standard Tariff Model of CERC

• Tariff for supply of electricity shall comprise two parts:– Fixed or Capacity Charges (For recovery of Annual Fixed Cost)– Energy or Variable Charges (For recovery of Primary Fuel Cost)

• The Annual Fixed Cost of a generating station or a transmission system comprises:– Return on Equity– Interest on loan capital– Depreciation– Interest on Working Capital– Operation and Maintenance expenses– Cost of secondary fuel oil (for Coal-based and Lignite-based generating

stations)– Special allowances for Renovation and Modernization

Snapshot of CERC’s advice to GOI• Regarding time frame for tariff based competitive bidding (01-06-

2010).• Regarding the Open Access (18-05-2010).• Regarding the issues related to regulation of electricity forward

contracts and electricity derivatives markets (19-02-2010).• Regarding ring-fencing of State Load Dispatch Centers (11-08-2009).• Regarding the rates of depreciation to be notified under the

Companies Act. (20-04-2009).• Regarding designating electricity trader by Central Government for

import of electricity from other countries (13-04-2009).

Relation with other Power Sector Bodies (MoP, CEA, Appellate Tribunal)

• Appellate Tribunal and CERC– Appellate Tribunal has been established by Central Government for those who are not

satisfied with the CERC order or with a state.– The tribunal has the authority to overrule or amend that order, just like the Income-Tax

tribunal.– The tribunal has to be approached within 45 days of the aggrieved person getting the order.

• Central Electricity Authority (CEA) and CERC– CEA takes care of Planning Regulation where power demand and supply gap has to be

regulated. Also, Construction Regulation where construction of Thermal, Hydro, Gas Based Power Plants and Power systems are regulated in the right manner.

– CERC takes care of the third aspect of Tariff regulation, a purely economic exercise.

• Ministry of Power (MoP) and CERC– MoP entrusts CERC for providing escalation rate for coal and gas, inflation rate based on

Wholesale Price Index (WPI), and Consumer Price Index (CPI), discount rate, and dollar-rupee exchange variation rate.

• Power Exchange Companies and CERC– CERC has issued the Power Market Regulations, 2010, which will govern transactions related

to “Energy trading” by companies such as Indian Energy Exchange (IEX), Power Exchange India (PXI) and National Power Exchange (NPX).

Similar Electricity Regulators in the Rest of the World (ROW)

• Energy Regulatory Commission of Thailand• Authority for Electricity Regulation of Oman• Federal Tariff Service (Russian Federation)• Energy Agency of the Republic of Serbia• Energy Market Regulatory Authority (Turkey)• Federal Energy Regulatory Commission (FERC) - (USA)• Electricity and Co-generation Regulatory Authority (Saudi Arabia)

State Electricity Regulatory Commission

An Overview• CERC and State Electricity Regulatory Commission (SERC) are the two electricity regulators • SERC’s primary function was to determine bulk and retail tariffs to be charged to customers, regulate the operations of intrastate transmission , including those of the State Load Despatch Center (SLDC).• During Parliamentary Standing Committee on Energy in the year 2001, SERC being established in states, for formulating standards relating to quality, continuity and reliability of service for the electricity industry have failed in their efforts. • There was a proposal of having benches of the Central Electricity Regulatory Commission (CERC) in five to six locations instead of having a SERC in each state, but the Committee that has rejected the proposal stating it was not possible unless states were willing to accept such a proposal.

State Load Dispatch Centre

• The State Load Dispatch Center is the apex body to ensure integrated operation of the power system.

• It is the strategic functional for discharging various functions specified under Section 32 of Indian Electricity Act 2003.

Functions of SLDC

• Forum of Load Dispatchers• Open Access Transmission• Commercial Implementation of Intra State ABT• Penalty on Violation of Grid Discipline

Key Issues in State Electricity Board

• Low profit for transmission utility• High Losses• AT & C losses • Metering efficiency low

Break-up of Electricity Board

Source: Tamil Nadu Electricity Board

Why Unbundling of SEB??

• Higher efficiency levels leading to lower costs and profitability.

• It would result in higher growth and development of this economically critical sector.

• Used to increase generating capacity and distribution.

ELECTRICITY ACT 2003

ELECTRICITY ACT 2003

• Electricity Generation is made as non licensing activity.

• Clearance of CEA is mandatory only for hydro projects, due to

concern of dam safety and inter-State issues..

• Removal of Restriction by SEB on captive power generation.

• Necessary weightage should be added to use the power generated by

Renewables.

• The Generators can sell electricity to any licensee or consumers

directly but the tariff for sale of generated electricity will be fixed by

government.

• The projects obtained by competitive bidding will be protected with

same tariffs that existed at the time of bidding.

POWER GENERATION :

• There would be two deemed licensees CTU and STU for Planning and Co ordinated

system of transmission of electricity.

• All the Transmission companies should be licensed by the Appropriate Commission

after consideration by respective transmission utilities.

• There would be a National Load dispatch Centre which is owned by the government

company/organization for optimum scheduling and dispatch of electricity to regional

dispatch centers.

• The Load Dispatch Centre/Transmission Utility/Transmission Licensee not to trade in

power to Facilitate genuine competition between generators

• Open access to the transmission lines to be provided to distribution licensees,

generating companies, which will generate competitive pressures and lead to gradual

cost reduction.

POWER TRANSMISSION

• Distribution is to be licensed by respective SERCs.

• Distribution licensee free to take up generation and vice versa. This would facilitate

private sector participation without Government Intrusion

• Retail tariff to be determined by the Regulatory Commission.

• Metering made mandatory.

• Provision for suspension/revocation of license by Regulatory Commission .

• Open access in distribution to be allowed by SERC in phases.

• Licensee’s obligation to supply to a particular area with additional tariff.

• The customer has a choice to choose his supplier other than licensee at an

additional surcharge.

POWER DISTRIBUTION

• Consumer to be given connection within stipulated time.

• Penalty in the event of failure to give connection .

• Payment of interest on security deposit.

• Regulatory commission to specify Electricity supply code to be followed by

licensees.

• Licensees required to meet standards of performance specified by

Regulatory Commission. Failure to meet standards makes them liable to

pay compensation to affected person within ninety days.

• Licensee to furnish to the Commission periodical information on standards

of performance.

CONSUMER PROTECTION

• Regulatory Commission to determine tariff for supply of electricity by generating co. on long/medium term contracts.

• No tariff fixation by regulatory commission if tariff is determined through competitive bidding or where consumers, on being allowed open access enter into agreement with generators/traders.

• Consumer tariff should progressively reduce cross subsidies and move towards actual cost of supply.

• State Government may provide subsidy in advance through the budget for specified target groups if it requires the tariff to be lower than that determined by the Regulatory Commission.

• Regulatory Commissions may undertake regulation including determination of multi-year tariff principles, which rewards efficiency and is based on commercial principles.

• Regulatory Commission to look at the costs of generation transmission and distribution separately.

TARRIFF

• CEA will continue as the main technical Advisor of the

Govt. of India/ State Government with the responsibility of

overall planning.

• CEA will specify the technical standards for electrical plants

and electrical lines.

• CEA will act as technical adviser to CERC as well as SERCs.

• CEA is responsible to specify the safety standards.

CENTRAL ELECTICITY AUTHORITY

• Focus on revenue realization rather than criminal proceedings.

• Penalties linked to the connected load and quantum of energy

and financial gain involved in theft.

• Provisions for compounding of offences.

• Assessment of electricity charges for unauthorized use of

electricity by the assessing officer designated by the State

Government.

• Theft punishable with imprisonment.

• Punishment provision for abetment of theft.

• Special Courts.

ACTIONS AGAINST THEFT

RESTRUCTURING OF SEBs:

• Provision for transfer scheme to create one or more companies

from SEB.

• Provision for continuance of SEBs

• States given flexibility to adopt reform model/path.

RURAL ELECTRIFICATION:

• Appropriate Government policies to endeavor to extend supply of

electricity to all villages/hamlets.

• No requirement of license if a person intends to generate and

distribute power in rural area.

OTHER MAJOR FEATURES

• Joint responsibility of State Government and Central Government in rural electrification. The concerned State Government and the Central Government shall jointly endeavour to provide access to electricity to all areas including villages and hamlets through rural electricity infrastructure and electrification of households

• NO license will be issued for supply of captive power based on previous provisions.

• The electricity supply code. It should be fixed and transparent for all regions under one SEB.

• The tariff is to be made progressively that reflects the cost of supply of electricity and also reduces cross-subsidies in the manner specified by the Appropriate Commission

• Further clarification and changes made on electricity misuse and theft.

ELECTRICITY AMENDMENT 2007

TARIFF POLICY

Reasons for Formulation

• The Goal – 1,000 Units Per Capita Consumption + 5% Spinning Reserve.

• State and Central Government Resources Inadequate for Funding.

• Important to Attract Private Investments.• Have to Provide Adequate Return on

Investment.

Objectives of the Policy

• Ensure Availability of Electricity to Consumers at Reasonable and Competitive Rates.

• Ensure Financial Viability of Sector and Attract Investments.

• Promote Transparency, Predictability and Consistency in Regulatory Approaches.

• Promote Competition, Efficiency in Operations and Improvement in Quality of Supply.

TARIFF PRINCIPLES

• Single Part Tariff and Two Part Tariff1) It consists of both fixed and variable costs calculated at a

normative generation level.2) Lower generation would lead to higher fixed costs and

vice versa.3) This encouraged higher generation at all times (peak and

off-peak hours) which prevailed in times of acute shortages.

4) The K.P. Rao Committee proposed linking the incentive and disincentive with PLF plus deemed generation which is in effect, Plant Availability.

Source: KP Rao Committee

Source: KP Rao Committee

Basic Guidelines

• Return on Investment1) The Power Sector must provide Returns on

par with the other sectors to be able to attract investment.

2) The Rate of Returns should be such that it allows generation of reasonable surplus.

• Debt : Equity Ratio of 70:30 is maintained.• Depreciation : CERC will specify the rates of

depreciation. Benefits of reduced tariff after the assets have been fully depreciated will be passed on to consumers.

• Cost of Debt can be restructured with a view to reduce tariffs.

• Foreign Exchange Risk shall not be a pass through. It has to be appropriately hedged.

• Multi Year Tariff - It is adopted for any tariffs to be determined for a 3 to 5 year control period.

• Clean Development Mechanism (CDM) – Tariff Fixation of all Electricity Projects that result in lower Green House Gas Emissions should take into account the benefits got under CDM.

DUTY STRUCTURE

• Duties/Cess can potentially distort competition if used on a non-uniform basis.

• Captive Power Plants pay a higher duty than normal consumers drawing power from the grid.

• This will hamper growth of small and medium industries thus hampering economic growth.

GENERATION

• Two Part Tariff Structure is adopted for all long term contracts.

• Availability Based Tariff (ABT) has been adopted.

• PPA’s ensure payment security arrangements for Generation Companies.

• In case of coal based power stations, cost of project must include the coal washeries and benefaction system.

CAPTIVE GENERATION

• Captive Plants can inject surplus power into the grid which can be bought by distribution licensees.

• Prices should be differentiated for peak and off-peak supply.

• Alternatively, generators can inject into the grid under the ABT mechanism.

• Non-Conventional Power can be purchased on Preferential Tariff.

TRANSMISSION

• Implemented with a view to utilize all assets across the country.

• The pricing is sensitive to distance, direction and related to the quantum of power flow.

• Metering that would enable ToD tariffs compatible with ABT requirements should be implemented.

• Loss Framework must ensure that Loss Compensation is reasonable and linked to applicable to technical loss benchmarks.

DISTRIBUTION

• Implementation of Multi Year Tariff Network will minimize risks, promote efficiency and bring higher reliability on tariffs.

• Licensees have the freedom to charge tariffs lower that that which is specified when competitive conditions prevail.

• The SERC’s must introduce mechanisms of sharing excess profits and losses with the consumers as a part of the overall MYT Framework.

Aspects in Determination of Tariff

• All Power Purchase costs need to be considered as legitimate unless it is proved that merit order basis has been violated.

• AT&C Loss reduction should be incentivized by linking returns in an MYT framework to an achievable trajectory.

• Tariffs should be linked to different levels of AT&C Losses. This can generate the political will to increase efficiency as greater losses means lesser margins.

• Pass through /Past losses only allowed to the extent caused by uncontrollable factors.

• Contingency Reserves must be drawn upon only with prior approval of state reserve.

SUBSIDIES

• If Consumption is less than 30 units/month, the cost of electricity supply shall be subsidized to an extent of 50% of the cost.

• Tariff for agricultural use may be set according to ground water levels in that area. This could prevent excessive depletion of water resources.

• Use Prepaid meters to transfer subsidy instead of free electricity.

• Use of self-closing load limiters may be encouraged as an option to limit consumption.

TARIFF COMPONENTS

• Two Part Tariffs applicable to large consumers.• PPA’s with generating companies may be suitably

assigned to successor distribution companies. • Cross subsidy surcharge should not eliminate

competition.• Wheeling charges should be determined by the intra-

state transmission utilities and will include average loss compensation.

• In case of blackouts, standby generator arrangements shall be provided by distribution licensee.

ANY QUERIES???

THANK YOU