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Tuesday, 27 October 2009

Strike cripples workers at DVC Mejia plant

Strike cripples workers at DVC Mejia plant

Sunday, 25 Oct 2009

It is reported that the ongoing strike by workers employed by contractors at Damodar Valley Corporation’s Mejia plant brought down the generation at the plant to one third on Friday.

Located in Bankura district of West Bengal the Mejia plant is DVC’s largest thermal power plant. The drop in generation is expected to create 100 MW shortfall in peak power supply in the State. West Bengal gets a share of the generation by the central power utility.

Sources in DVC said that out of a total capacity of 1340 MW by six units, the Mejia plant, located approximately 150 km from Kolkata, was producing approximately 360 MW from two units on Friday. The generation was hit as the agitating unions were not allowing coal supplies to the plant.

The strike has been called by CITU and Bharatiya Mazdoor Sangh led unions demanding wages higher than the State Government prescribed minimum wages for industrial workers. The INTUC led union, which initially supported the strike, opted out of it at a later stage.

According to sources, DVC has outsourced various operations of the power plant including coal handling, electrical maintenance, instrumentation maintenance, cleaning and so on to a number of contractors. As part of the contract agreement, DVC ensures that the workers employed by these contractors are paid the stipulated minimum wage of INR 126 a day plus medical, house rent and other allowances.

A source told Business Line that “The CITU and BMS led unions at Mejia are demanding a minimum wage of INR 187 a day in line with payments made to some temporary workers in our old units in Jharkhand. However, while such temporary workers are not offered any allowances, the unions at Mejia want the allowances too adding that efforts to resolve the differences through dialogue failed at a series of meetings mediated by the State Labour Commissioner’s office.”

DVC has reportedly made it clear that it would follow the State prescribed norms in fixing minimum wages for such workers employed by the contractors.

A DVC source said that “We may force contractors to offer higher wages provided the State Government amends its laws accordingly.”

(Sourced from Business Line)

Technology boost for power

Technology boost for power
22 Oct 2009, 0219 hrs IST, ET Bureau
It’s welcome that there is improved focus — albeit belated — on new technology and cutting-edge equipment in a policy-deficit sector like power, characterised by routine revenue leakage in the key area of distribution.

Reports say that power producers NTPC and DVC would soon invite bids for a series of super-critical boilers and turbines, for revved up thermal efficiency. The idea, of course, is to boost power output, with little or no increase in the fuel input.

It would improve our energy efficiency levels, reduce the relative price of power and very substantially increase energy availability too. An added bonus of increased diffusion of super-critical boilers in thermal plants would be the sustained decrease, in relative terms, of emissions of green-house gases. Super-critical boilers do increase thermal efficiency by up to a third or more, as compared to sub-critical boilers.

It implies added power generation, but without proportionate increase in, say, coal combustion. It means being concurrently energy efficient and environment friendly. So there’s no contradiction involved in aiming to shore up thermal efficiency levels and in the process tackling climate change, given the power-investment backlog. The NTPC and DVC bids require that domestic manufacturing of the boilers be made mandatory, in stages. We need to fastforward adoption of clean-coal technologies.

It is notable that the technology adoption in power is taking place over a wide range. The Centre, for example, has identified five new sites for new nuclear-power plants, to be built with Russian, French and US collaboration. The state-owned Nuclear Power Corporation has chalked out long-term plans for a quantum jump in generation capacity.

And the Centre reportedly plans to have an ambitious 20,000 mw of solar power capacity — or about a fifth of today’s conventional generation capacity — by 2020. What’s needed is concrete policy action and follow through, to actualise the plans. In tandem, what’s surely warranted is to clamp down on theft and reckless give-aways in the state power sector. Otherwise, the moribund finances of power utilities would short-circuit modernisation.

CIL to buy equipment worth $2 bn in 5 years

CIL to buy equipment worth $2 bn in 5 years

17 Oct 2009, 0102 hrs IST, ET Bureau


KOLKATA: Coal India (CIL) will procure spares and equipment worth $2 billion from the overseas market in the next five years. This will mainly be procured to beef up production levels by 175 million tonne, and take up at least 134 greenfield mining projects.

Confirming the development, CIL chairman Partha S Bhattacharyya said: “We intend to increase production capacity by as much as 35 mt every year over the next five years. This will require sourcing equipment from overseas — equipment that is not manufactured in India. The cumulative value is expected to be about $2 billion over the next five years.”

Going by the target, CIL is slated to touch a total production level of 570 mt by the end of the next five years. “To achieve this, we have to source high capacity open cast mining equipment, including high capacity dumpers, shovels and dredgers for mines. All these are not manufactured in the domestic market. A part of the procurement will also go into replacing existing old equipment,” said a senior CIL official.

Incidentally, CIL’s effort to take over the ailing Durgapur-based Mining and Allied Machineries Corporation (MAMC) is yet to fructify. The proposal was taken up to start manufacturing underground mining equipment at the plant since there are no established makers as on date.

Once, MAMC’s debts are waived by the Centre, CIL and its partners, including Damodar Valley Corporation (DVC), will be able to manufacture open cast mining equipment, too. “It will help substitute imported equipment for both open cast as well as underground mines. However, we are still waiting for the government’s clearance,” said NC Jha, director technical at CIL.

“Since MAMC is a BIFR case, the joint takeover proposal by BEML, CIL and DVC to take over the firm will now have to be passed by the high court, following which needs to be cleared by the Cabinet. BEML intends to take 48% in the company, while CIL and DVC will take 26% each,” said a CIL official.

Incidentally, MAMC owed the West Bengal government about Rs 100 crore, which has already been waived. Central dues stand at about Rs 1,200 crore, and will require a Cabinet clearance.

NTPC and Damodar Valley Corporation (DVC) are likely to float on Friday global tenders worth over Rs 25,000 crore

NTPC may float Rs 25,000cr tender

16 Oct 2009, 0333 hrs IST, ET Bureau


NEW DELHI: State-owned power generation companies NTPC and Damodar Valley Corporation (DVC) are likely to float on Friday global tenders worth over Rs 25,000 crore for sourcing supercritical power equipment for five power plants, a power ministry official told ET.

The proposal, which has already been approved by the Cabinet Committee on Infrastructure, requires the successful bidders to also gradually shift production to India, setting in motion the government’s initiative to encourage domestic manufacturing of the energy efficient power equipment. The equipment would kick-start five power projects across Bihar, Uttar Pradesh, Maharashtra and Jharkhand, setting in motion investment of about Rs 40,000 crore.

According to the official, who refused to be named, the power utilities would jointly invite international competitive bids (ICB) for bulk supply of super-critical power equipment for 11 units of 660 MW each. The tender
terms have a clause making domestic manufacturing mandatory in stages.

So far five companies—BHEL, L&T-Mitsubishi Heavy Industries (MHI) combine, Alstom-Bharat Forge, Toshiba-JSW and Italian company Ansaldo Caldie—have expressed their interest in participating in the bulk tender for supercritical equipment. The government, however, expects participation from even Chinese, Russian and a few East European companies.

Out of the 11 supercritical units, nine would be used by NTPC for its projects while two will be used by DVC. It has been decided that NTPC would invite two separate international competitive bids (ICB)—one for all boilers and the second for steam turbine generator (STG) islands—instead of a single common boiler-turbine-generator (BTG) bulk package.

Monday, 12 October 2009

Super-critical power generation equipment for Damodar Valley Corp. (DVC)

New Delhi: India’s efforts to generate clean power, and do so more efficiently, could get a fillip with state-owned power generation utility NTPC Ltd getting ready to issue a Rs40,000 crore tender for the supply of so-called super-critical power generation equipment for its proposed projects and those of Damodar Valley Corp. (DVC). on 18 October.

Super critical equipment, apart from being environment-friendly, help increase plant efficiencies.

The order, the largest such single one, will be for the supply of 11 boilers and 11 turbines of 660MW each. Bids will be opened by January 2010 and the orders will be placed by April next year. Of these, nine units will be for NTPC and two for DVC.

“We plan to issue the notice inviting tenders on 18 October. While the power ministry’s approval has already been received, we are waiting for the Central Vigilance Commission’s approval,” said a senior NTPC executive who did not want to be identified.

CVC oversees the functioning of government agencies and state-owned companies. The cabinet committee on infrastructure has already given its approval to the tender, which should bring some cheer to the capital goods industry and the power sector.

The order will be placed through international bidding, with a stipulation that the winner set up manufacturing facilities in the country.

The bid formula will work thus: the lowest bidder for boilers will be given an order for six units. If Bharat Heavy Electricals Ltd (Bhel) is the lowest bidder, it gets the order for six units. If it is not, the government will still award it the order for the remaining five units (of the 11), provided it agrees to match the lowest bid. If Bhel does not match the bid, an option will be given to others in the order of bid ranking. A similar system will be followed while ordering for the turbines.

A second NTPC executive, who also declined to be identified, confirmed the plan for bid award process and said, “the bid documents have been finalized.”

Mint had reported on 16 June that the government’s agenda for its first 100 days in office that ended 29 August included this proposal.

Analysts Mint spoke termed the order a significant one and described it as part of India’s attempt to launch a super-critical power programme along the lines of similar efforts in the US, Japan, Germany, Korea and Russia.

Apart from Bhel, private sector consortia expected to participate in the tender include Toshiba Corp. of Japan along with JSW Group; Ansaldo Caldaie SpA of Italy and GB Engineering Enterprises Pvt. Ltd; and Larsen and Toubro Ltd and Mitsubishi Heavy Industries Ltd of Japan.

“It (the order) is important for equipment manufacturers such as L&T, Toshiba and others who are entering the sector. Bhel stands to gain as there is an assurance of a minium order,” said Madanagopal R., an equity research analyst at Mumbai-based brokerage Centrum Broking Pvt. Ltd

Sunday, 11 October 2009

After the Bengal government, it is the turn of the DVC to face the heat over land acquisition

ADRA (PURULIA): After the Bengal government, it is the turn of the DVC to face the heat over land acquisition. Hundreds of villagers living on either side of the Bengal-Jharkhand border have launched an agitation demanding proper compensation and jobs for the families of those who had to give up their land for the Panchet dam 56 years ago.


The villagers have been sitting on a dharna since October 2 in front of the administrative building of DVC in Panchet. The agitation is being carried out under the banner of DVC Khotigrosto Sangram Samiti. Trinamool Congress and JMM have reportedly decided to extend moral support to the movement.


In 1953, 34,000 acres of land spread over villages in Bengal and Bihar (now Jharkhand) were acquired for the dam. Around 73,650 families living in over 100 villages 30-35 in Bengal were affected.


Basudeb Mallick, a resident of Santalpur in Dhanbad and secretary of the samiti, said: "The affected families had been told that they would be compensated, but nothing has happened."


Sraban Singha of Raibandh village in Nituria block of Purulia said they have asked the DVC management to open a dialogue with them by October 11. If the authorities fail to do so, the protesters will disrupt work at the dam, he warned.


Animesh Mukherjee, chief engineer of DVC's Panchet project, said the corporation had given jobs to 4,862 affected villagers in the 1950s. Then, in 1977, a compensation package was announced and jobs were given to another 102 people. "If the villagers have valid documents, they should approach the SDO with their claims," he added.


CPM MP Basudeb Acharya had raised the issue in Parliament and urged DVC to employ the kin of those affected. Charan Bauri, a JMM leader in Nituria, said many of the landless are now too old to work. "How much can they be compensated after so many decades?" he asked. Trinamool's S P Yadav echoed his views.

Friday, 9 October 2009

Amendment to Tariff Policy

MINISTRY OF POWER-GOI

RESOLUTION


F.No.23/2/2005-R&R(Vol.IV) – In this Ministry’s Resolution F.No.
23/2/2005-R&R(Vol.III) dated 6th January, 2006 published in the Gazette of
India (Extraordinary), Part I, Section 1, notifying the Tariff Policy under the
provisions of Section 3 of the Electricity Act, 2003, the following
amendment is hereby made:
The following proviso is added at the end of Para 5.1 of the Tariff
Policy:
“Provided that a developer, of a hydroelectric project, not being a
State controlled/ owned company, would have the option of getting the tariff
determined by the appropriate Commission on the basis of performance
based cost of service regulations if the following conditions are fulfilled:
a) The appropriate Commission is satisfied that the project site has been
allotted to the developer by the concerned State Government after following
a transparent two stage process. The first stage should be for prequalification
on the basis of criteria such as financial strength as measured by networth,
past experience of developing infrastructure projects of similar size, past
track record of developing projects on time and within estimated costs,
turnover and ability to meet performance guarantee etc. In the second stage,
bids are to be called on the basis of only one single quantifiable parameter,
such as, free power in excess of 13%, equity participation offered to the
State Government, or upfront payment etc.
b) Projects of more than 100 MW design capacity for which sites have
been awarded earlier by following a transparent process and on the basis of
predetermined set of criteria would also be covered in this dispensation.
c) Concurrence of CEA (if required under Section 8 of the Act),
financial closure, award of work and long term PPA (of more than 35 Years)
of the capacity specified in (d) below with distribution licensees are
completed by 31.12.2010.
d) Long term PPA would be at least for 60% of the total saleable design
energy. However, this figure of 60% would get enhanced by 5% for delay
of every six months in commissioning of the last unit of the project against
the scheduled date approved by the Appropriate Commission before
commencement of the construction. The time period for commissioning of
all the units of the project shall be four years from the date of approval of the
commissioning schedule by the Appropriate Commission. However, the
Appropriate Commission may, after recording reasons in writing, fix longer
time period for large storage projects and run-off-the river projects of more
than 500 MW capacity. Adherence to the agreed timelines to achieve the
fixed commissioning schedule shall be verified through independent third
party verification.
e) Award of contracts for supply of equipment and construction of the
project, either through a turnkey or through well defined packages, are done
on the basis of international competitive bidding.
In cases, where the conditions mentioned above at (a) to (e) are
fulfilled, the Appropriate Commission shall determine tariff ensuring the
following:
(i) Any expenditure incurred or committed to be incurred by the project
developer for getting project site allotted (except free power up to 13%)
would neither be included in the project cost, nor any such expenditure shall
be passed through tariff.
(ii) The project cost shall include the
- cost of the approved R&R plan of the Project which shall be in
conformity with the following:
(a) the National Rehabilitation & Resettlement Policy
currently in force;
(b) the R&R package as enclosed at appendix; and
- the cost of project developers’ 10% contribution towards
RGGVY project in the affected area as per the project report
sanctioned by the Ministry of Power.
(iii) Annual fixed charges shall be taken pro-rate to the saleable design
energy tied up on the basis of long term PPAs with respect to total saleable
design energy. The total saleable design energy shall be arrived at by
deducting the following from the design energy at the bus bar:
a) 13% of free power (12% for the host Government and 1% for
contribution towards Local Area Development Fund as
constituted by the State Government). This 12% free power
may be suitably staggered as decided by the State Government
b) Energy corresponding to 100 units of electricity to be provided
free of cost every month to every Project Affected Family
notified by the State Government to be offered through the
concerned distribution licensee in the designated resettlement
area/ projects area for a period of ten years from the date of
commissioning”.

I.C.P. KESHARI, Jt. Secretary.





APPENDIX
SALIENT FEATURES OF THE APPROVED R&R PROVISIONS
FOR HYDRO POWER PROJECTS
1. SCOPE OF COVERAGE
The following provisions shall be applicable even if one family is
affected by the development of a Hydro Power Project.
2. DEFINITION OF PROJECT AFFECTED FAMILIES (PAFs)
A Project Affected Family (PAF) shall mean a family whose place of
residence or other property, or source of livelihood has been affected
by the development of a hydro project and who have been residing in
the affected zone for two years preceding the date of declaration of
notification under Section-4 of the LA Act. The affected family
would also include squatters.
3. DEFINITION OF AGRICULTURAL LABOURER
A person normally residing in the affected zone for two years
preceding the date of declaration of the affected zone and earns
his/her livelihood principally by manual labour on agricultural land.
4. DEFINITION OF NON AGRICULTURAL LABOURER
A person normally residing in the affected zone for two years
preceding the date of declaration of the affected zone and who does
not hold any land in the affected zone but earns his/ her livelihood
principally by manual labour or as rural artisan or a service provider
to the community.
5. DEFINITION OF SQUATTERS
A family occupying Government land in the affected zone without a
legal title, at least for 5 years prior to the date of declaration of
notification under Section-4 of L.A. Act.
6. REHABILITATION / RESETTLEMENT COLONIES
This policy aims to provide built up houses to Project Affected
Families (PAFs) who get displaced due to the development of hydro
projects to the extent possible. However, wherever opted for, liberal
House Construction Allowance would be given in lieu.
7. TRAINING AND CAPACITY BUILDING
This policy also emphasizes the need to provide training to the Project
Affected Families as well as to the local population for a sustained
livelihood. Special training programmes from ITIs aimed at providing
the required skills to the local population would be undertaken by the
Project developers at least six months prior to commencement of
construction. This is expected to boost the employability of the PAFs
and other people residing in the vicinity of the project.
8. ADDITIONAL PROVISIONS
This policy envisages additional provisions for Project Affected
Families such as:
o scholarships for meritorious students,
o extension of medical facilities,
o marriage grants,
o subsistence grants,
o support for income generation schemes for cooperative and self help
groups,
o seed, pesticides and fertilizer subsidies, and irrigation support.
Besides the additional provisions mentioned above, the normally
applicable provisions of the National Policy on Rehabilitation and
resettlement, currently in force, would be applicable.
***

TARIFF POLICY

Ministry of Power-GOI

RESOLUTION
No.23/2/2005-R&R(Vol.III)

TARIFF POLICY

1.0 INTRODUCTION
1.1. In compliance with section 3 of the Electricity Act 2003 the Central Government hereby notifies the Tariff policy in continuation of the National Electricity Policy (NEP) notified on 12th February 2005.
1.2. The National Electricity Policy has set the goal of adding new generation capacity of more than one lakh MW during the 10th and 11th Plan periods to have per capita availability of over 1000 units of electricity per year and to not only eliminate energy and peaking shortages but to also have a spinning reserve of 5% in the system. Development of the power sector has also to meet the challenge of providing access for electricity to all households in next five years.
1.3. It is therefore essential to attract adequate investments in the power sector by providing appropriate return on investment as budgetary resources of the Central and State Governments are incapable of providing the requisite funds. It is equally necessary to ensure availability of electricity to different categories of consumers at reasonable rates for achieving the objectives of rapid economic development of the country and improvement in the living standards of the people.
1.4. Balancing the requirement of attracting adequate investments to the sector and that of ensuring reasonability of user charges for the consumers is the critical challenge for the regulatory process. Accelerated development of the power sector and its ability to attract necessary investments calls for, inter alia, consistent regulatory approach across the country. Consistency in approach becomes all the more necessary considering the large number of States and the diversities involved.
2.0 LEGAL POSITION
2.1 Section 3 (1) of the Electricity Act 2003 empowers the Central Government to formulate the tariff policy. Section 3 (3) of the Act enables the Central Government to review or revise the tariff policy from time to time.
2.2 The Act also requires that the Central Electricity Regulatory Commission (CERC) and State Electricity Regulatory Commissions (SERCs) shall be guided by the tariff policy in discharging their functions including framing the regulations under section 61 of the Act.
2.3 Section 61 of the Act provides that Regulatory Commissions shall be guided by the principles and methodologies specified by the Central Commission for determination of tariff applicable to generating companies and transmission licensees.
2.4 The Forum of Regulators has been constituted by the Central Government under the provisions of the Act which would, inter alia, facilitate consistency in approach specially in the area of distribution.
3.0 EVOLUTION OF THE POLICY
The tariff policy has been evolved in consultation with the State Governments and the Central Electricity Authority (CEA) and keeping in view the advice of the Central Electricity Regulatory Commission and suggestions of various stakeholders.
4.0 OBJECTIVES OF THE POLICY
The objectives of this tariff policy are to:
(a) Ensure availability of electricity to consumers at reasonable and competitive rates;
(b) Ensure financial viability of the sector and attract investments;
(c) Promote transparency, consistency and predictability in regulatory approaches across jurisdictions and minimise perceptions of regulatory risks;
(d) Promote competition, efficiency in operations and improvement in quality of supply.
5.0 GENERAL APPROACH TO TARIFF
5.1 Introducing competition in different segments of the electricity industry is one of the key features of the Electricity Act, 2003. Competition will lead to significant benefits to consumers through reduction in capital costs and also efficiency of operations. It will also facilitate the price to be determined competitively. The Central Government has already issued detailed guidelines for tariff based bidding process for procurement of electricity by distribution licensees for medium or long-term period vide gazette notification dated 19th January, 2005.
All future requirement of power should be procured competitively by distribution licensees except in cases of expansion of existing projects or where there is a State controlled/owned company as an identified developer and where regulators will need to resort to tariff determination based on norms provided that expansion of generating capacity by private developers for this purpose would be restricted to one time addition of not more than 50% of the existing capacity.
Even for the Public Sector projects, tariff of all new generation and transmission projects should be decided on the basis of competitive bidding after a period of five years or when the Regulatory Commission is satisfied that the situation is ripe to introduce such competition.
5.2 The real benefits of competition would be available only with the emergence of appropriate market conditions. Shortages of power supply will need to be overcome. Multiple players will enhance the quality of service through competition. All efforts will need to be made to bring power industry to this situation as early as possible in the overall interests of consumers. Transmission and distribution, i.e. the wires business is internationally recognized as having the characteristics of a natural monopoly where there are inherent difficulties in going beyond regulated returns on the basis of scrutiny of costs.
5.3 Tariff policy lays down following framework for performance based cost of service regulation in respect of aspects common to generation, transmission as well as distribution. These shall not apply to competitively bid projects as referred to in para 6.1 and para 7.1 (6). Sector specific aspects are dealt with in subsequent sections.
a) Return on Investment
Balance needs to be maintained between the interests of consumers and the need for investments while laying down rate of return. Return should attract investments at par with, if not in preference to, other sectors so that the electricity sector is able to create adequate capacity. The rate of return should be such that it allows generation of reasonable surplus for growth of the sector.
The Central Commission would notify, from time to time, the rate of return on equity for generation and transmission projects keeping in view the assessment of overall risk and the prevalent cost of capital which shall be followed by the SERCs also. The rate of return notified by CERC for transmission may be adopted by the State Electricity Regulatory Commissions (SERCs) for distribution with appropriate modification taking into view the higher risks involved. For uniform approach in this matter, it would be desirable to arrive at a consensus through the Forum of Regulators.
While allowing the total capital cost of the project, the Appropriate Commission would ensure that these are reasonable and to achieve this objective, requisite benchmarks on capital costs should be evolved by the Regulatory Commissions.
Explanation: For the purposes of return on equity, any cash resources available to the company from its share premium account or from its internal resources that are used to fund the equity commitments of the project under consideration should be treated as equity subject to limitations contained in (b) below.
The Central Commission may adopt the alternative approach of regulating through return on capital.
The Central Commission may adopt either Return on Equity approach or Return on Capital approach whichever is considered better in the interest of the consumers.
The State Commission may consider ‘distribution margin’ as basis for allowing returns in distribution business at an appropriate time. The Forum of Regulators should evolve a comprehensive approach on “distribution margin” within one year. The considerations while preparing such an approach would, inter-alia, include issues such as reduction in Aggregate Technical and Commercial losses, improving the standards of performance and reduction in cost of supply.
b) Equity Norms
For financing of future capital cost of projects, a Debt : Equity ratio of 70:30 should be adopted. Promoters would be free to have higher quantum of equity investments. The equity in excess of this norm should be treated as loans advanced at the weighted average rate of interest and for a weighted average tenor of the long term debt component of the project after ascertaining the reasonableness of the interest rates and taking into account the effect of debt restructuring done, if any. In case of equity below the normative level, the actual equity would be used for determination of Return on Equity in tariff computations.
c) Depreciation
The Central Commission may notify the rates of depreciation in respect of generation and transmission assets. The depreciation rates so notified would also be applicable for distribution with appropriate modification as may be evolved by the Forum of Regulators.
The rates of depreciation so notified would be applicable for the purpose of tariffs as well as accounting.
There should be no need for any advance against depreciation.
Benefit of reduced tariff after the assets have been fully depreciated should remain available to the consumers.
d) Cost of Debt
Structuring of debt, including its tenure, with a view to reducing the tariff should be encouraged. Savings in costs on account of subsequent restructuring of debt should be suitably incentivised by the Regulatory Commissions keeping in view the interests of the consumers.
e) Cost of Management of Foreign Exchange Risk
Foreign exchange variation risk shall not be a pass through. Appropriate costs of hedging and swapping to take care of foreign exchange variations should be allowed for debt obtained in foreign currencies. This provision would be relevant only for the projects where tariff has not been determined on the basis of competitive bids.
f) Operating Norms
Suitable performance norms of operations together with incentives and dis-incentives would need be evolved along with appropriate arrangement for sharing the gains of efficient operations with the consumers. Except for the cases referred to in para 5.3 (h)(2), the operating parameters in tariffs should be at “normative levels” only and not at “lower of normative and actuals”. This is essential to encourage better operating performance. The norms should be efficient, relatable to past performance, capable of achievement and progressively reflecting increased efficiencies and may also take into consideration the latest technological advancements, fuel, vintage of equipments, nature of operations, level of service to be provided to consumers etc. Continued and proven inefficiency must be controlled and penalized.
The Central Commission would, in consultation with the Central Electricity Authority, notify operating norms from time to time for generation and transmission. The SERC would adopt these norms. In cases where operations have been much below the norms for many previous years, the SERCs may fix relaxed norms suitably and draw a transition path over the time for achieving the norms notified by the Central Commission.
Operating norms for distribution networks would be notified by the concerned SERCs. For uniformity of approach in determining such norms for distribution, the Forum of Regulators should evolve the approach including the guidelines for treatment of state specific distinctive features.
g) Renovation and Modernatisation
Renovation and modernization (it shall not include periodic overhauls) for higher efficiency levels needs to be encouraged. A multi-year tariff (MYT) framework may be prescribed which should also cover capital investments necessary for renovation and modernization and an incentive framework to share the benefits of efficiency improvement between the utilities and the beneficiaries with reference to revised and specific performance norms to be fixed by the Appropriate Commission. Appropriate capital costs required for pre-determined efficiency gains and/or for sustenance of high level performance would need to be assessed by the Appropriate Commission.
(h) Multi Year Tariff
1) Section 61 of the Act states that the Appropriate Commission, for determining the terms and conditions for the determination of tariff, shall be guided inter-alia, by multi-year tariff principles. The MYT framework is to be adopted for any tariffs to be determined from April 1, 2006. The framework should feature a five-year control period. The initial control period may however be of 3 year duration for transmission and distribution if deemed necessary by the Regulatory Commission on account of data uncertainties and other practical considerations. In cases of lack of reliable data, the Appropriate Commission may state assumptions in MYT for first control period and a fresh control period may be started as and when more reliable data becomes available.
2) In cases where operations have been much below the norms for many previous years the initial starting point in determining the revenue requirement and the improvement trajectories should be recognized at “relaxed” levels and not the “desired” levels. Suitable benchmarking studies may be conducted to establish the “desired” performance standards. Separate studies may be required for each utility to assess the capital expenditure necessary to meet the minimum service standards.
3) Once the revenue requirements are established at the beginning of the control period, the Regulatory Commission should focus on regulation of outputs and not the input cost elements. At the end of the control period, a comprehensive review of performance may be undertaken.
4) Uncontrollable costs should be recovered speedily to ensure that future consumers are not burdened with past costs. Uncontrollable costs would include (but not limited to) fuel costs, costs on account of inflation, taxes and cess, variations in power purchase unit costs including on account of hydro-thermal mix in case of adverse natural events.
5) Clear guidelines and regulations on information disclosure may be developed by the Regulatory Commissions. Section 62 (2) of the Act empowers the Appropriate Commission to require licensees to furnish separate details, as may be specified in respect of generation, transmission and distribution for determination of tariff.
(i) Benefits under CDM
Tariff fixation for all electricity projects (generation, transmission and distribution) that result in lower Green House Gas (GHG) emissions than the relevant base line should take into account the benefits obtained from the Clean Development Mechanism (CDM) into consideration, in a manner so as to provide adequate incentive to the project developers.
5.4 While it is recognized that the State Governments have the right to impose duties, taxes, cess on sale or consumption of electricity, these could potentially distort competition and optimal use of resources especially if such levies are used selectively and on a non- uniform basis.
In some cases, the duties etc. on consumption of electricity is linked to sources of generation (like captive generation) and the level of duties levied is much higher as compared to that being levied on the same category of consumers who draw power from grid. Such a distinction is invidious and inappropriate. The sole purpose of freely allowing captive generation is to enable industries to access reliable, quality and cost effective power. Particularly, the provisions relating to captive power plants which can be set up by group of consumers has been brought in recognition of the fact that efficient expansion of small and medium industries across the country will lead to faster economic growth and creation of larger employment opportunities.
For realizing the goal of making available electricity to consumers at reasonable and competitive prices, it is necessary that such duties are kept at reasonable level.
5.5 Though, as per the provisions of the Act, the outer limit to introduce open access in distribution is 27.1.2009, it would be desirable that, in whichever states the situation so permits, the Regulatory Commissions introduce such open access earlier than this deadline.
6.0 GENERATION
Accelerated growth of the generation capacity sector is essential to meet the estimated growth in demand. Adequacy of generation is also essential for efficient functioning of power markets. At the same time, it is to be ensured that new capacity addition should deliver electricity at most efficient rates to protect the interests of consumers. This policy stipulates the following for meeting these objectives.
6.1 Procurement of power
As stipulated in para 5.1, power procurement for future requirements should be through a transparent competitive bidding mechanism using the guidelines issued by the Central Government vide gazette notification dated 19th January, 2005. These guidelines provide for procurement of electricity separately for base load requirements and for peak load requirements. This would facilitate setting up of generation capacities specifically for meeting peak.
6.2 Tariff structuring and associated issues
(1) A two-part tariff structure should be adopted for all long term contracts to facilitate Merit Order dispatch. According to National Electricity Policy, the Availability Based Tariff (ABT) is to be introduced at State level by April 2006. This framework would be extended to generating stations (including grid connected captive plants of capacities as determined by the SERC). The Appropriate Commission may also introduce differential rates of fixed charges for peak and off peak hours for better management of load.
(2) Power Purchase Agreement should ensure adequate and bankable payment security arrangements to the Generating companies. In case of persisting default in spite of the available payment security mechanisms like letter of credit, escrow of cash flows etc. the generating companies may sell to other buyers.
(3) In case of coal based generating stations, the cost of project will also include reasonable cost of setting up coal washeries, coal beneficiation system and dry ash handling & disposal system.
6.3 Harnessing captive generation
Captive generation is an important means to making competitive power available. Appropriate Commission should create an enabling environment that encourages captive power plants to be connected to the grid.
Such captive plants could inject surplus power into the grid subject to the same regulation as applicable to generating companies. Firm supplies may be bought from captive plants by distribution licensees using the guidelines issued by the Central Government under section 63 of the Act.
The prices should be differentiated for peak and off-peak supply and the tariff should include variable cost of generation at actual levels and reasonable compensation for capacity charges.
Alternatively, a frequency based real time mechanism can be used and the captive generators can be allowed to inject into the grid under the ABT mechanism.
Wheeling charges and other terms and conditions for implementation should be determined in advance by the respective State Commission, duly ensuring that the charges are reasonable and fair.
Grid connected captive plants could also supply power to non-captive users connected to the grid through available transmission facilities based on negotiated tariffs. Such sale of electricity would be subject to relevant regulations for open access.
6.4 Non-conventional sources of energy generation including Co-generation:
(1) Pursuant to provisions of section 86(1)(e) of the Act, the Appropriate Commission shall fix a minimum percentage for purchase of energy from such sources taking into account availability of such resources in the region and its impact on retail tariffs. Such percentage for purchase of energy should be made applicable for the tariffs to be determined by the SERCs latest by April 1, 2006.
It will take some time before non-conventional technologies can compete with conventional sources in terms of cost of electricity. Therefore, procurement by distribution companies shall be done at preferential tariffs determined by the Appropriate Commission.
(2) Such procurement by Distribution Licensees for future requirements shall be done, as far as possible, through competitive bidding process under Section 63 of the Act within suppliers offering energy from same type of non-conventional sources. In the long-term, these technologies would need to compete with other sources in terms of full costs.
(3) The Central Commission should lay down guidelines within three months for pricing non-firm power, especially from non–conventional sources, to be followed in cases where such procurement is not through competitive bidding.
7.0 TRANSMISSION
The transmission system in the country consists of the regional networks, the inter-regional connections that carry electricity across the five regions, and the State networks. The national transmission network in India is presently under development. Development of the State networks has not been uniform and capacity in such networks needs to be augmented. These networks will play an important role in intra-State power flows and also in the regional and national flows. The tariff policy, insofar as transmission is concerned, seeks to achieve the following objectives:
1. Ensuring optimal development of the transmission network to promote efficient utilization of generation and transmission assets in the country;
2. Attracting the required investments in the transmission sector and providing adequate returns.
7.1 Transmission pricing
(1) A suitable transmission tariff framework for all inter-State transmission, including transmission of electricity across the territory of an intervening State as well as conveyance within the State which is incidental to such inter-state transmission, needs to be implemented with the objective of promoting effective utilization of all assets across the country and accelerated development of new transmission capacities that are required.
(2) The National Electricity Policy mandates that the national tariff framework implemented should be sensitive to distance, direction and related to quantum of power flow. This would be developed by CERC taking into consideration the advice of the CEA. Such tariff mechanism should be implemented by 1st April 2006.
(3)Transmission charges, under this framework, can be determined on MW per circuit kilometer basis, zonal postage stamp basis, or some other pragmatic variant, the ultimate objective being to get the transmission system users to share the total transmission cost in proportion to their respective utilization of the transmission system. The overall tariff framework should be such as not to inhibit planned development/augmentation of the transmission system, but should discourage non-optimal transmission investment.
(4) In view of the approach laid down by the NEP, prior agreement with the beneficiaries would not be a pre-condition for network expansion. CTU/STU should undertake network expansion after identifying the requirements in consonance with the National Electricity Plan and in consultation with stakeholders, and taking up the execution after due regulatory approvals.
(5) The Central Commission would establish, within a period of one year, norms for capital and operating costs, operating standards and performance indicators for transmission lines at different voltage levels. Appropriate baseline studies may be commissioned to arrive at these norms.
(6) Investment by transmission developer other than CTU/STU would be invited through competitive bids. The Central Government will issue guidelines in three months for bidding process for developing transmission capacities. The tariff of the projects to be developed by CTU/STU after the period of five years or when the Regulatory Commission is satisfied that the situation is right to introduce such competition (as referred to in para 5.1) would also be determined on the basis of competitive bidding.
(7) After the implementation of the proposed framework for the inter-State transmission ,a similar approach should be implemented by SERCs in next two years for the intra-State transmission, duly considering factors like voltage, distance, direction and quantum of flow.
(8) Metering compatible with the requirements of the proposed transmission tariff framework should be established on priority basis. The metering should be compatible with ABT requirements, which would also facilitate implementation of Time of Day (ToD) tariffs.
7.2 Approach to transmission loss allocation
(1) Transactions should be charged on the basis of average losses arrived at after appropriately considering the distance and directional sensitivity, as applicable to relevant voltage level, on the transmission system. Based on the methodology laid down by the CERC in this regard for inter- state transmission, the Forum of Regulators may evolve a similar approach for intra-state transmission.
The loss framework should ensure that the loss compensation is reasonable and linked to applicable technical loss benchmarks. The benchmarks may be determined by the Appropriate Commission after considering advice of CEA.
It would be desirable to move to a system of loss compensation based on incremental losses as present deficiencies in transmission capacities are overcome through network expansion.
(2) The Appropriate Commission may require necessary studies to be conducted to establish the allowable level of system loss for the network configuration, and the capital expenditure required to augment the transmission system and reduce system losses. Since additional flows above a level of line loading leads to significantly higher losses, CTU/STU should ensure upgrading of transmission systems to avoid the situations of overloading. The Appropriate Commission should permit adequate capital investments in new assets for upgrading the transmission system.
7.3 Other issues in transmission
(1) Financial incentives and disincentives should be implemented for the CTU and the STU around the key performance indicators (KPI) for these organisations. Such KPIs would include efficient network construction, system availability and loss reduction.
(2) All available information should be shared with intending users by the CTU/STU and the load dispatch centers, particularly information on available transmission capacity and load flow studies.
8.0 DISTRIBUTION
Supply of reliable and quality power of specified standards in an efficient manner and at reasonable rates is one of the main objectives of the National Electricity Policy. The State Commission should determine and notify the standards of performance of licensees with respect to quality, continuity and reliability of service for all consumers. It is desirable that the Forum of Regulators determines the basic framework on service standards. A suitable transition framework could be provided for the licensees to reach the desired levels of service as quickly as possible. Penalties may be imposed on licensees in accordance with section 57 of the Act for failure to meet the standards.
Making the distribution segment of the industry efficient and solvent is the key to success of power sector reforms and provision of services of specified standards. Therefore, the Regulatory Commissions need to strike the right balance between the requirements of the commercial viability of distribution licensees and consumer interests. Loss making utilities need to be transformed into profitable ventures which can raise necessary resources from the capital markets to provide services of international standards to enable India to achieve its full growth potential.
Efficiency in operations should be encouraged. Gains of efficient operations with reference to normative parameters should be appropriately shared between consumers and licensees.
8.1 Implementation of Multi-Year Tariff (MYT) framework
1) This would minimise risks for utilities and consumers, promote efficiency and appropriate reduction of system losses and attract investments and would also bring greater predictability to consumer tariffs on the whole by restricting tariff adjustments to known indicators on power purchase prices and inflation indices. The framework should be applied for both public and private utilities.
2) The State Commissions should introduce mechanisms for sharing of excess profits and losses with the consumers as part of the overall MYT framework .In the first control period the incentives for the utilities may be asymmetric with the percentage of the excess profits being retained by the utility set at higher levels than the percentage of losses to be borne by the utility. This is necessary to accelerate performance improvement and reduction in losses and will be in the long term interest of consumers by way of lower tariffs.
3) As indicated in para 5.3 (h), the MYT framework implemented in the initial control period should have adequate flexibility to accommodate changes in the baselines consequent to metering being completed.
4) Licensees may have the flexibility of charging lower tariffs than approved by the State Commission if competitive conditions require so without having a claim on additional revenue requirement on this account in accordance with Section 62 of the Act .
5) At the beginning of the control period when the “actual” costs form the basis for future projections, there may be a large uncovered gap between required tariffs and the tariffs that are presently applicable. The gap should be fully met through tariff charges and through alternative means that could inter-alia include financial restructuring and transition financing.
6) Incumbent licensees should have the option of filing for separate revenue requirements and tariffs for an area where the State Commission has issued multiple distribution licenses, pursuant to the provisions of Section 14 of the Act read with para 5.4.7 of the National Electricity Policy.
7) Appropriate Commissions should initiate tariff determination and regulatory scrutiny on a suo moto basis in case the licensee does not initiate filings in time. It is desirable that requisite tariff changes come into effect from the date of commencement of each financial year and any gap on account of delay in filing should be on account of licensee.
8.2 Framework for revenue requirements and costs
8.2.1 The following aspects would need to be considered in determining tariffs:
(1) All power purchase costs need to be considered legitimate unless it is established that the merit order principle has been violated or power has been purchased at unreasonable rates. The reduction of Aggregate Technical & Commercial (ATC) losses needs to be brought about but not by denying revenues required for power purchase for 24 hours supply and necessary and reasonable O&M and investment for system upgradation. Consumers, particularly those who are ready to pay a tariff which reflects efficient costs have the right to get uninterrupted 24 hours supply of quality power. Actual level of retail sales should be grossed up by normative level of T&D losses as indicated in MYT trajectory for allowing power purchase cost subject to justifiable power purchase mix variation (for example, more energy may be purchased from thermal generation in the event of poor rainfall) and fuel surcharge adjustment as per regulations of the SERC.
(2) ATC loss reduction should be incentivised by linking returns in a MYT framework to an achievable trajectory. Greater transparency and nurturing of consumer groups would be efficacious. For government owned utilities improving governance to achieve ATC loss reduction is a more difficult and complex challenge for the SERCs. Prescription of a MYT dispensation with different levels of consumer tariffs in succeeding years linked to different ATC loss levels aimed at covering full costs could generate the requisite political will for effective action to reduce theft as the alternative would be stiffer tariff increases. Third party verification of energy audit results for different areas/localities could be used to impose area/locality specific surcharge for greater ATC loss levels and this in turn could generate local consensus for effective action for better governance. The SERCs may also encourage suitable local area based incentive and disincentive scheme for the staff of the utilities linked to reduction in losses.
The SERC shall undertake independent assessment of baseline data for various parameters for every distribution circle of the licensee and this exercise should be completed latest by March, 2007.
The SERC shall also institute a system of independent scrutiny of financial and technical data submitted by the licensees.
As the metering is completed upto appropriate level in the distribution network, latest by March, 2007, it should be possible to segregate technical losses. Accordingly technical loss reduction under MYT framework should then be treated as distinct from commercial loss reduction which require a different approach.
(3) Section 65 of the Act provides that no direction of the State Government regarding grant of subsidy to consumers in the tariff determined by the State Commission shall be operative if the payment on account of subsidy as decided by the State Commission is not made to the utilities and the tariff fixed by the State Commission shall be applicable from the date of issue of orders by the Commission in this regard. The State Commissions should ensure compliance of this provision of law to ensure financial viability of the utilities. To ensure implementation of the provision of the law, the State Commission should determine the tariff initially, without considering the subsidy commitment by the State Government and subsidised tariff shall be arrived at thereafter considering the subsidy by the State Government for the respective categories of consumers.
(4) Working capital should be allowed duly recognising the transition issues faced by the utilities such as progressive improvement in recovery of bills. Bad debts should be recognised as per policies developed and subject to the approval of the State Commission.
(5) Pass through of past losses or profits should be allowed to the extent caused by uncontrollable factors. During the transition period controllable factors should be to the account of utilities and consumers in proportions determined under the MYT framework.
(6) The contingency reserves should be drawn upon with prior approval of the State Commission only in the event of contingency conditions specified through regulations by the State Commission. The existing practice of providing for development reserves and tariff and dividend control reserves should be discontinued.
8.2.2. The facility of a regulatory asset has been adopted by some Regulatory Commissions in the past to limit tariff impact in a particular year. This should be done only as exception, and subject to the following guidelines:
a. The circumstances should be clearly defined through regulations, and should only include natural causes or force majeure conditions. Under business as usual conditions, the opening balances of uncovered gap must be covered through transition financing arrangement or capital restructuring;
b. Carrying cost of Regulatory Asset should be allowed to the utilities;
c. Recovery of Regulatory Asset should be time-bound and within a period not exceeding three years at the most and preferably within control period;
d. The use of the facility of Regulatory Asset should not be repetitive.
e. In cases where regulatory asset is proposed to be adopted, it should be ensured that the return on equity should not become unreasonably low in any year so that the capability of the licensee to borrow is not adversely affected.
8.3 Tariff design : Linkage of tariffs to cost of service
It has been widely recognised that rational and economic pricing of electricity can be one of the major tools for energy conservation and sustainable use of ground water resources.
In terms of the Section 61 (g) of the Act, the Appropriate Commission shall be guided by the objective that the tariff progressively reflects the efficient and prudent cost of supply of electricity.
The State Governments can give subsidy to the extent they consider appropriate as per the provisions of section 65 of the Act. Direct subsidy is a better way to support the poorer categories of consumers than the mechanism of cross-subsidizing the tariff across the board. Subsidies should be targeted effectively and in transparent manner. As a substitute of cross-subsidies, the State Government has the option of raising resources through mechanism of electricity duty and giving direct subsidies to only needy consumers. This is a better way of targetting subsidies effectively.
Accordingly, the following principles would be adopted:
1. In accordance with the National Electricity Policy, consumers below poverty line who consume below a specified level, say 30 units per month, may receive a special support through cross subsidy. Tariffs for such designated group of consumers will be at least 50% of the average cost of supply. This provision will be re-examined after five years.
2. For achieving the objective that the tariff progressively reflects the cost of supply of electricity, the SERC would notify roadmap within six months with a target that latest by the end of year 2010-2011 tariffs are within ± 20 % of the average cost of supply. The road map would also have intermediate milestones, based on the approach of a gradual reduction in cross subsidy.
For example if the average cost of service is Rs 3 per unit, at the end of year 2010-2011 the tariff for the cross subsidised categories excluding those referred to in para 1 above should not be lower than Rs 2.40 per unit and that for any of the cross-subsidising categories should not go beyond Rs 3.60 per unit.
3. While fixing tariff for agricultural use, the imperatives of the need of using ground water resources in a sustainable manner would also need to be kept in mind in addition to the average cost of supply. Tariff for agricultural use may be set at different levels for different parts of a state depending of the condition of the ground water table to prevent excessive depletion of ground water. Section 62 (3) of the Act provides that geographical position of any area could be one of the criteria for tariff differentiation. A higher level of subsidy could be considered to support poorer farmers of the region where adverse ground water table condition requires larger quantity of electricity for irrigation purposes subject to suitable restrictions to ensure maintenance of ground water levels and sustainable ground water usage.
4. Extent of subsidy for different categories of consumers can be decided by the State Government keeping in view various relevant aspects. But provision of free electricity is not desirable as it encourages wasteful consumption of electricity besides, in most cases, lowering of water table in turn creating avoidable problem of water shortage for irrigation and drinking water for later generations. It is also likely to lead to rapid rise in demand of electricity putting severe strain on the distribution network thus adversely affecting the quality of supply of power. Therefore, it is necessary that reasonable level of user charges are levied. The subsidized rates of electricity should be permitted only up to a pre-identified level of consumption beyond which tariffs reflecting efficient cost of service should be charged from consumers. If the State Government wants to reimburse even part of this cost of electricity to poor category of consumers the amount can be paid in cash or any other suitable way. Use of prepaid meters can also facilitate this transfer of subsidy to such consumers.
5. Metering of supply to agricultural / rural consumers can be achieved in a consumer friendly way and in effective manner by management of local distribution in rural areas through commercial arrangement with franchisees with involvement of panchayat institutions, user associations, cooperative societies etc. Use of self closing load limitors may be encouraged as a cost effective option for metering in cases of “limited use consumers” who are eligible for subsidized electricity.
8.4 Definition of tariff components and their applicability
1. Two-part tariffs featuring separate fixed and variable charges and Time differentiated tariff shall be introduced on priority for large consumers (say, consumers with demand exceeding 1 MW) within one year. This would also help in flattening the peak and implementing various energy conservation measures.
2. The National Electricity Policy states that existing PPAs with the generating companies would need to be suitably assigned to the successor distribution companies. The State Governments may make such assignments taking care of different load profiles of the distribution companies so that retail tariffs are uniform in the State for different categories of consumers. Thereafter the retail tariffs would reflect the relative efficiency of distribution companies in procuring power at competitive costs, controlling theft and reducing other distribution losses.
3. The State Commission may provide incentives to encourage metering and billing based on metered tariffs, particularly for consumer categories that are presently unmetered to a large extent. The metered tariffs and the incentives should be given wide publicity.
4. The SERCs may also suitably regulate connection charges to be recovered by the distribution licensee to ensure that second distribution licensee does not resort to cherry picking by demanding unreasonable connection charges. The connection charges of the second licensee should not be more than those payable to the incumbent licensee.
8.5 Cross-subsidy surcharge and additional surcharge for open access
8.5.1 National Electricity Policy lays down that the amount of cross-subsidy surcharge and the additional surcharge to be levied from consumers who are permitted open access should not be so onerous that it eliminates competition which is intended to be fostered in generation and supply of power directly to the consumers through open access.
A consumer who is permitted open access will have to make payment to the generator, the transmission licensee whose transmission systems are used, distribution utility for the wheeling charges and, in addition, the cross subsidy surcharge. The computation of cross subsidy surcharge, therefore, needs to be done in a manner that while it compensates the distribution licensee, it does not constrain introduction of competition through open access. A consumer would avail of open access only if the payment of all the charges leads to a benefit to him. While the interest of distribution licensee needs to be protected it would be essential that this provision of the Act, which requires the open access to be introduced in a time-bound manner, is used to bring about competition in the larger interest of consumers.
Accordingly, when open access is allowed the surcharge for the purpose of sections 38,39,40 and sub-section 2 of section 42 would be computed as the difference between (i) the tariff applicable to the relevant category of consumers and (ii) the cost of the distribution licensee to supply electricity to the consumers of the applicable class. In case of a consumer opting for open access, the distribution licensee could be in a position to discontinue purchase of power at the margin in the merit order. Accordingly, the cost of supply to the consumer for this purpose may be computed as the aggregate of (a) the weighted average of power purchase costs (inclusive of fixed and variable charges) of top 5% power at the margin, excluding liquid fuel based generation, in the merit order approved by the SERC adjusted for average loss compensation of the relevant voltage level and (b) the distribution charges determined on the principles as laid down for intra-state transmission charges.
Surcharge formula:
S = T – [ C (1+ L / 100) + D ]
Where
S is the surcharge
T is the Tariff payable by the relevant category of consumers;
C is the Weighted average cost of power purchase of top 5% at the margin excluding liquid fuel based generation and renewable power
D is the Wheeling charge
L is the system Losses for the applicable voltage level, expressed as a percentage
The cross-subsidy surcharge should be brought down progressively and, as far as possible, at a linear rate to a maximum of 20% of its opening level by the year 2010-11.
8.5.2 No surcharge would be required to be paid in terms of sub-section (2) of Section 42 of the Act on the electricity being sold by the generating companies with consent of the competent government under Section 43(A)(1)(c) of the Electricity Act, 1948 (now repealed) and on the electricity being supplied by the distribution licensee on the authorisation by the State Government under Section 27 of the Indian Electricity Act, 1910 (now repealed), till the current validity of such consent or authorisations.
8.5.3 The surcharge may be collected either by the distribution licensee, the transmission licensee, the STU or the CTU, depending on whose facilities are used by the consumer for availing electricity supplies. In all cases the amounts collected from a particular consumer should be given to the distribution licensee in whose area the consumer is located. In case of two licensees supplying in the same area the licensee from whom the consumer was availing supply shall be paid the amounts collected.
8.5.4 The additional surcharge for obligation to supply as per section 42(4) of the Act should become applicable only if it is conclusively demonstrated that the obligation of a licensee, in terms of existing power purchase commitments, has been and continues to be stranded, or there is an unavoidable obligation and incidence to bear fixed costs consequent to such a contract. The fixed costs related to network assets would be recovered through wheeling charges.
8.5.5 Wheeling charges should be determined on the basis of same principles as laid down for intra-state transmission charges and in addition would include average loss compensation of the relevant voltage level.
8.5.6 In case of outages of generator supplying to a consumer on open access, standby arrangements should be provided by the licensee on the payment of tariff for temporary connection to that consumer category as specified by the Appropriate Commission.
9.0 Trading Margin
The Act provides that the Appropriate Commission may fix the trading margin, if considered necessary. Though there is a need to promote trading in
electricity for making the markets competitive, the Appropriate Commission should monitor the trading transactions continuously and ensure that the electricity traders do not indulge in profiteering in situation of power shortages. Fixing of trading margin should be resorted to for achieving this objective.
Sd/-
(U.N. PANJIAR)
Additional Secretary to the Government of India

National Electricity Policy

MOP-GOI

RESOLUTION

No. 23/40/2004-R&R (Vol.II)

1.0 INTRODUCTION

1.1 In compliance with section 3 of the Electricity Act 2003 the Central Government hereby notifies the National Electricity Policy.

1.2 Electricity is an essential requirement for all facets of our life. It has been recognized as a basic human need. It is a critical infrastructure on which the socio-economic development of the country depends. Supply of electricity at reasonable rate to rural India is essential for its overall development. Equally important is availability of reliable and quality power at competitive rates to Indian industry to make it globally competitive and to enable it to exploit the tremendous potential of employment generation. Services sector has made significant contribution to the growth of our economy. Availability of quality supply of electricity is very crucial to sustained growth of this segment.

1.3 Recognizing that electricity is one of the key drivers for rapid economic growth and poverty alleviation, the nation has set itself the target of providing access to all households in next five years. As per Census 2001, about 44% of the households do not have access to electricity. Hence meeting the target of providing universal access is a daunting task requiring significant addition to generation capacity and expansion of the transmission and distribution network.

1.4 Indian Power sector is witnessing major changes. Growth of Power Sector in India since its Independence has been noteworthy. However, the demand for power has been outstripping the growth of availability. Substantial peak and energy shortages prevail in the country. This is due to inadequacies in generation, transmission & distribution as well as inefficient use of electricity. Very high level of technical and commercial losses and lack of commercial approach in management of utilities has led to unsustainable financial operations. Cross-subsidies have risen to unsustainable levels. Inadequacies in distribution networks has been one of the major reasons for poor quality of supply.

1.5 Electricity industry is capital-intensive having long gestation period. Resources of power generation are unevenly dispersed across the country. Electricity is a commodity that can not be stored in the grid where demand and supply have to be continuously balanced. The widely distributed and rapidly increasing demand requirements of the country need to be met in an optimum manner.

1.6 Electricity Act, 2003 provides an enabling framework for accelerated and more efficient development of the power sector. The Act seeks to encourage competition with appropriate regulatory intervention. Competition is expected to yield efficiency gains and in turn result in availability of quality supply of electricity to consumers at competitive rates.

1.7 Section 3 (1) of the Electricity Act 2003 requires the Central Government to formulate, inter alia, the National Electricity Policy in consultation with Central Electricity Authority (CEA) and State Governments. The provision is quoted below:

"The Central Government shall, from time to time, prepare the National Electricity Policy and tariff policy, in consultation with the State Governments and the Authority for development of the power system based on optimal utilization of resources such as coal, natural gas, nuclear substances or materials, hydro and renewable sources of energy".

Section 3 (3) of the Act enables the Central Government to review or revise the National Electricity Policy from time to

time.

1.8 The National Electricity Policy aims at laying guidelines for accelerated development of the power sector, providing supply of electricity to all areas and protecting interests of consumers and other stakeholders keeping in view availability of energy resources, technology available to exploit these resources, economics of generation using different resources, and energy security issues.

1.9 The National Electricity Policy has been evolved in consultation with and taking into account views of the State Governments, Central Electricity Authority (CEA), Central Electricity Regulatory Commission (CERC) and other stakeholders.

2.0 AIMS & OBJECTIVES

The National Electricity Policy aims at achieving the following objectives:

  • Access to Electricity - Available for all households in next five years
  • Availability of Power - Demand to be fully met by 2012. Energy and peaking shortages to be overcome and adequate spinning reserve to be available.
  • Supply of Reliable and Quality Power of specified standards in an efficient manner and at reasonable rates.
  • Per capita availability of electricity to be increased to over 1000 units by 2012.
  • Minimum lifeline consumption of 1 unit/household/day as a merit good by year 2012.
  • Financial Turnaround and Commercial Viability of Electricity Sector.
  • Protection of consumers’ interests.

3. NATIONAL ELECTRICITY PLAN

3.1 Assessment of demand is an important pre-requisite for planning capacity addition. Section 3 (4) of the Act requires the Central Electricity Authority (CEA) to frame a National Electricity Plan once in five years and revise the same from time to time in accordance with the National Electricity Policy. Also, section 73 (a) provides that formulation of short-term and perspective plans for development of the electricity system and coordinating the activities of various planning agencies for the optimal utilization of resources to subserve the interests of the national economy shall be one of the functions of the CEA. The Plan prepared by CEA and approved by the Central Government can be used by prospective generating companies, transmission utilities and transmission/distribution licensees as reference document.

3.2 Accordingly, the CEA shall prepare short-term and perspective plan. The National Electricity Plan would be for a short-term framework of five years while giving a 15 year perspective and would include:

  • Short-term and long term demand forecast for different regions;
  • Suggested areas/locations for capacity additions in generation and transmission keeping in view the economics of generation and transmission, losses in the system, load centre requirements, grid stability, security of supply, quality of power including voltage profile etc. and environmental considerations including rehabilitation and resettlement;
  • Integration of such possible locations with transmission system and development of national grid including type of transmission systems and requirement of redundancies; and
  • Different technologies available for efficient generation, transmission and distribution.
  • Fuel choices based on economy, energy security and environmental considerations.

3.3 While evolving the National Electricity Plan, CEA will consult all the stakeholders including state governments and the state governments would, at state level, undertake this exercise in coordination with stakeholders including distribution licensees and STUs. While conducting studies periodically to assess short-term and long-term demand, projections made by distribution utilities would be given due weightage. CEA will also interact with institutions and agencies having economic expertise, particularly in the field of demand forecasting. Projected growth rates for different sectors of the economy will also be taken into account in the exercise of demand forecasting.

3.4 The National Electricity Plan for the ongoing 10th Plan period and 11th Plan and perspective Plan for the 10th, 11th & 12th Plan periods would be prepared and notified after reviewing and revising the existing Power Plan prepared by CEA. This will be done within six months.

4.0 ISSUES ADDRESSED

The policy seeks to address the following issues:

  • Rural Electrification
  • Generation
  • Transmission
  • Distribution
  • Recovery of Cost of services & Targetted Subsidies.
  • Technology Development and Research and Development (R&D)
  • Competition aimed at Consumer Benefits
  • Financing Power Sector Programmes Including Private Sector Participation.
  • Energy Conservation
  • Environmental Issues
  • Training and Human Resource Development
  • Cogeneration and Non-Conventional Energy Sources
  • Protection of Consumer interests and Quality Standards

5.1 RURAL ELECTRIFICATION

5.1.1 The key development objective of the power sector is supply of electricity to all areas including rural areas as mandated in section 6 of the Electricity Act. Both the central government and state governments would jointly endeavour to achieve this objective at the earliest. Consumers, particularly those who are ready to pay a tariff which reflects efficient costs have the right to get uninterrupted twenty four hours supply of quality power. About 56% of rural households have not yet been electrified even though many of these households are willing to pay for electricity. Determined efforts should be made to ensure that the task of rural electrification for securing electricity access to all households and also ensuring that electricity reaches poor and marginal sections of the society at reasonable rates is completed within the next five years.

5.1.2 Reliable rural electrification system will aim at creating the following:

(a) Rural Electrification Distribution Backbone (REDB) with at least one 33/11 kv (or 66/11 kv) substation in every Block and more if required as per load, networked and connected appropriately to the state transmission system

(b) Emanating from REDB would be supply feeders and one distribution transformer at least in every village settlement.

(c) Household Electrification from distribution transformer to connect every household on demand.

(d) Wherever above is not feasible (it is neither cost effective nor the optimal solution to provide grid connectivity) decentralized distributed generation facilities together with local distribution network would be provided so that every household gets access to electricity. This would be done either through conventional or non-conventional methods of electricity generation whichever is more suitable and economical. Non-conventional sources of energy could be utilized even where grid connectivity exists provided it is found to be cost effective.

(e) Development of infrastructure would also cater for requirement of agriculture & other economic activities including irrigation pump sets, small and medium industries, khadi and village industries, cold chain and social services like health and education.

5.1.3 Particular attention would be given in household electrification to dalit bastis, tribal areas and other weaker sections.

5.1.4 Rural Electrification Corporation of India, a Government of India enterprise will be the nodal agency at Central Government level to implement the programme for achieving the goal set by National Common Minimum Programme of giving access to electricity to all the households in next five years. Its role is being suitably enlarged to ensure timely implementation of rural electrification projects.


5.1.5 Targetted expansion in access to electricity for rural households in the desired timeframe can be achieved if the distribution licensees recover at least the cost of electricity and related O&M expenses from consumers, except for lifeline support to households below the poverty line who would need to be adequately subsidized. Subsidies should be properly targeted at the intended beneficiaries in the most efficient manner. Government recognizes the need for providing necessary capital subsidy and soft long-term debt finances for investment in rural electrification as this would reduce the cost of supply in rural areas. Adequate funds would need to be made available for the same through the Plan process. Also commensurate organizational support would need to be created for timely implementation. The Central Government would assist the State Governments in achieving this.

5.1.6 Necessary institutional framework would need to be put in place not only to ensure creation of rural electrification infrastructure but also to operate and maintain supply system for securing reliable power supply to consumers. Responsibility of operation & maintenance and cost recovery could be discharged by utilities through appropriate arrangements with Panchayats, local authorities, NGOs and other franchisees etc.

5.1.7 The gigantic task of rural electrification requires appropriate cooperation among various agencies of the State Governments, Central Government and participation of the community. Education and awareness programmes would be essential for creating demand for electricity and for achieving the objective of effective community participation.

5.2 GENERATION

5.2.1 Inadequacy of generation has characterized power sector operation in India. To provide availability of over 1000 units of per capita electricity by year 2012 it had been estimated that need based capacity addition of more than 1,00,000 MW would be required during the period 2002-12.

5.2.2 The Government of India has initiated several reform measures to create a favourable environment for addition of new generating capacity in the country. The Electricity Act 2003 has put in place a highly liberal framework for generation. There is no requirement of licensing for generation. The requirement of techno-economic clearance of CEA for thermal generation project is no longer there. For hydroelectric generation also, the limit of capital expenditure, above which concurrence of CEA is required, would be raised suitably from the present level. Captive generation has been freed from all controls.

5.2.3 In order to fully meet both energy and peak demand by 2012, there is a need to create adequate reserve capacity margin. In addition to enhancing the overall availability of installed capacity to 85%, a spinning reserve of at least 5%, at national level, would need to be created to ensure grid security and quality and reliability of power supply.

5.2.4 The progress of implementation of capacity addition plans and growth of demand would need to be constantly monitored and necessary adjustments made from time to time. In creating new generation capacities, appropriate technology may be considered keeping in view the likely widening of the difference between peak demand and the base load.

Hydro Generation

5.2.5 Hydroelectricity is a clean and renewable source of energy. Maximum emphasis would be laid on the full development of the feasible hydro potential in the country. The 50,000 MW hydro initiative has been already launched and is being vigorously pursued with DPRs for projects of 33,000 MW capacity already under preparation.

5.2.6 Harnessing hydro potential speedily will also facilitate economic development of States, particularly North-Eastern States, Sikkim, Uttaranchal, Himachal Pradesh and J&K, since a large proportion of our hydro power potential is located in these States. The States with hydro potential need to focus on the full development of these potentials at the earliest.

5.2.7 Hydel projects call for comparatively larger capital investment. Therefore, debt financing of longer tenure would need to be made available for hydro projects. Central Government is committed to policies that ensure financing of viable hydro projects.

5.2.8 State Governments need to review procedures for land acquisition, and other approvals/clearances for speedy implementation of hydroelectric projects.

5.2.9 The Central Government will support the State Governments for expeditious development of their hydroelectric projects by offering services of Central Public Sector Undertakings like National Hydroelectric Power Corporation (NHPC).

5.2.10 Proper implementation of National Policy on Rehabilitation and Resettlement (R&R) would be essential in this regard so as to ensure that the concerns of project-affected families are addressed adequately.

5.2.11 Adequate safeguards for environmental protection with suitable mechanism for monitoring of implementation of Environmental Action Plan and R&R Schemes will be put in place.

Thermal Generation

5.2.12 Even with full development of the feasible hydro potential in the country, coal would necessarily continue to remain the primary fuel for meeting future electricity demand.

5.2.13 Imported coal based thermal power stations, particularly at coastal locations, would be encouraged based on their economic viability. Use of low ash content coal would also help in reducing the problem of fly ash emissions.

5.2.14 Significant Lignite resources in the country are located in Tamil Nadu, Gujarat and Rajasthan and these should be increasingly utilized for power generation. Lignite mining technology needs to be improved to reduce costs.

5.2.15 Use of gas as a fuel for power generation would depend upon its availability at reasonable prices. Natural gas is being used in Gas Turbine /Combined Cycle Gas Turbine (GT/CCGT) stations, which currently accounts for about 10 % of total capacity. Power sector consumes about 40% of the total gas in the country. New power generation capacity could come up based on indigenous gas findings, which can emerge as a major source of power generation if prices are reasonable. A national gas grid covering various parts of the country could facilitate development of such capacities.

5.2.16 Imported LNG based power plants are also a potential source of electricity and the pace of their development would depend on their commercial viability. The existing power plants using liquid fuels should shift to use of Natural Gas/LNG at the earliest to reduce the cost of generation.

5.2.17 For thermal power, economics of generation and supply of electricity should be the basis for choice of fuel from among the options available. It would be economical for new generating stations to be located either near the fuel sources e.g. pithead locations or load centres.

5.2.18 Generating companies may enter into medium to long-term fuel supply agreements specially with respect to imported fuels for commercial viability and security of supply.

Nuclear Power

5.2.19 Nuclear power is an established source of energy to meet base load demand. Nuclear power plants are being set up at locations away from coalmines. Share of nuclear power in the overall capacity profile will need to be increased significantly. Economics of generation and resultant tariff will be, among others, important considerations. Public sector investments to create nuclear generation capacity will need to be stepped up. Private sector partnership would also be facilitated to see that not only targets are achieved but exceeded.

Non-conventional Energy Sources

5.2.20 Feasible potential of non-conventional energy resources, mainly small hydro, wind and bio-mass would also need to be exploited fully to create additional power generation capacity. With a view to increase the overall share of non-conventional energy sources in the electricity mix, efforts will be made to encourage private sector participation through suitable promotional measures.

Renovation and Modernization (R&M)

5.2.21 One of the major achievements of the power sector has been a significant increase in availability and plant load factor of thermal power stations specially over the last few years. Renovation and modernization for achieving higher efficiency levels needs to be pursued vigorously and all existing generation capacity should be brought to minimum acceptable standards. The Govt. of India is providing financial support for this purpose.

5.2.22 For projects performing below acceptable standards, R&M should be undertaken as per well-defined plans featuring necessary cost-benefit analysis. If economic operation does not appear feasible through R&M, then there may be no alternative to closure of such plants as the last resort.

5.2.23 In cases of plants with poor O&M record and persisting operational problems, alternative strategies including change of management may need to be considered so as to improve the efficiency to acceptable levels of these power stations.

Captive Generation

5.2.24 The liberal provision in the Electricity Act, 2003 with respect to setting up of captive power plant has been made with a view to not only securing reliable, quality and cost effective power but also to facilitate creation of employment opportunities through speedy and efficient growth of industry.

5.2.25 The provision relating to captive power plants to be set up by group of consumers is primarily aimed at enabling small and medium industries or other consumers that may not individually be in a position to set up plant of optimal size in a cost effective manner. It needs to be noted that efficient expansion of small and medium industries across the country would lead to creation of enormous employment opportunities.

5.2.26 A large number of captive and standby generating stations in India have surplus capacity that could be supplied to the grid continuously or during certain time periods. These plants offer a sizeable and potentially competitive capacity that could be harnessed for meeting demand for power. Under the Act, captive generators have access to licensees and would get access to consumers who are allowed open access. Grid inter-connections for captive generators shall be facilitated as per section 30 of the Act. This should be done on priority basis to enable captive generation to become available as distributed generation along the grid. Towards this end, non-conventional energy sources including co-generation could also play a role. Appropriate commercial arrangements would need to be instituted between licensees and the captive generators for harnessing of spare capacity energy from captive power plants. The appropriate Regulatory Commission shall exercise regulatory oversight on such commercial arrangements between captive generators and licensees and determine tariffs when a licensee is the off-taker of power from captive plant.

5.3 TRANSMISSION

5.3.1 The Transmission System requires adequate and timely investments and also efficient and coordinated action to develop a robust and integrated power system for the country.

5.3.2 Keeping in view the massive increase planned in generation and also for development of power market, there is need for adequately augmenting transmission capacity. While planning new generation capacities, requirement of associated transmission capacity would need to be worked out simultaneously in order to avoid mismatch between generation capacity and transmission facilities. The policy emphasizes the following to meet the above objective:

  • The Central Government would facilitate the continued development of the National Grid for providing adequate infrastructure for inter-state transmission of power and to ensure that underutilized generation capacity is facilitated to generate electricity for its transmission from surplus regions to deficit regions.
  • The Central Transmission Utility (CTU) and State Transmission Utility (STU) have the key responsibility of network planning and development based on the National Electricity Plan in coordination with all concerned agencies as provided in the Act. The CTU is responsible for the national and regional transmission system planning and development. The STU is responsible for planning and development of the intra-state transmission system. The CTU would need to coordinate with the STUs for achievement of the shared objective of eliminating transmission constraints in cost effective manner.
  • Network expansion should be planned and implemented keeping in view the anticipated transmission needs that would be incident on the system in the open access regime. Prior agreement with the beneficiaries would not be a pre-condition for network expansion. CTU/STU should undertake network expansion after identifying the requirements in consultation with stakeholders and taking up the execution after due regulatory approvals.
  • Structured information dissemination and disclosure procedures should be developed by the CTU and STUs to ensure that all stakeholders are aware of the status of generation and transmission projects and plans. These should form a part of the overall planning procedures.
  • The State Regulatory Commissions who have not yet notified the grid code under the Electricity Act 2003 should notify the same not later than September 2005.

5.3.3 Open access in transmission has been introduced to promote competition amongst the generating companies who can now sell to different distribution licensees across the country. This should lead to availability of cheaper power. The Act mandates non-discriminatory open access in transmission from the very beginning. When open access to distribution networks is introduced by the respective State Commissions for enabling bulk consumers to buy directly from competing generators, competition in the market would increase the availability of cheaper and reliable power supply. The Regulatory Commissions need to provide facilitative framework for non-discriminatory open access. This requires load dispatch facilities with state-of-the art communication and data acquisition capability on a real time basis. While this is the case currently at the regional load dispatch centers, appropriate State Commissions must ensure that matching facilities with technology upgrades are provided at the State level, where necessary and realized not later than June 2006.

5.3.4 The Act prohibits the State transmission utilities/transmission licensees from engaging in trading in electricity. Power purchase agreements (PPAs) with the generating companies would need to be suitably assigned to the Distribution Companies, subject to mutual agreement. To the extent necessary, such assignments can be done in a manner to take care of different load profiles of the Distribution Companies. Non-discriminatory open access shall be provided to competing generators supplying power to licensees upon payment of transmission charge to be determined by the appropriate Commission. The appropriate Commissions shall establish such transmission charges no later than June 2005.

5.3.5 To facilitate orderly growth and development of the power sector and also for secure and reliable operation of the grid, adequate margins in transmission system should be created. The transmission capacity would be planned and built to cater to both the redundancy levels and margins keeping in view international standards and practices. A well planned and strong transmission system will ensure not only optimal utilization of transmission capacities but also of generation facilities and would facilitate achieving ultimate objective of cost effective delivery of power. To facilitate cost effective transmission of power across the region, a national transmission tariff framework needs to be implemented by CERC. The tariff mechanism would be sensitive to distance, direction and related to quantum of flow. As far as possible, consistency needs to be maintained in transmission pricing framework in inter-State and intra-State systems. Further it should be ensured that the present network deficiencies do not result in unreasonable transmission loss compensation requirements.

5.3.6 The necessary regulatory framework for providing non-discriminatory open access in transmission as mandated in the Electricity Act 2003 is essential for signalling efficient choice in locating generation capacity and for encouraging trading in electricity for optimum utilization of generation resources and consequently for reducing the cost of supply.

5.3.7 The spirit of the provisions of the Act is to ensure independent system operation through NLDC, RLDCs and SLDCs. These dispatch centers, as per the provisions of the Act, are to be operated by a Government company or authority as notified by the appropriate Government. However, till such time these agencies/authorities are established the Act mandates that the CTU or STU, as the case may be, shall operate the RLDCs or SLDC. The arrangement of CTU operating the RLDCs would be reviewed by the Central Government based on experience of working with the existing arrangement. A view on this aspect would be taken by the Central Government by December 2005.

5.3.8 The Regional Power Committees as envisaged in section section 2(55) would be constituted by the Government of India within two months with representation from various stakeholders.

5.3.9 The National Load Despatch Centre (NLDC) along with its constitution and functions as envisaged in Section 26 of the Electricity Act 2003 would be notified within three months. RLDCs and NLDC will have complete responsibility and commensurate authority for smooth operation of the grid irrespective of the ownership of the transmission system, be it under CPSUs, State Utility or private sector.

5.3.10 Special mechanisms would be created to encourage private investment in transmission sector so that sufficient investments are made for achieving the objective of demand to be fully met by 2012.

5.4 DISTRIBUTION

5.4.1 Distribution is the most critical segment of the electricity business chain. The real challenge of reforms in the power sector lies in efficient management of the distribution sector.

5.4.2 The Act provides for a robust regulatory framework for distribution licensees to safeguard consumer interests. It also creates a competitive framework for the distribution business, offering options to consumers, through the concepts of open access and multiple licensees in the same area of supply.

5.4.3 For achieving efficiency gains proper restructuring of distribution utilities is essential. Adequate transition financing support would also be necessary for these utilities. Such support should be arranged linked to attainment of predetermined efficiency improvements and reduction in cash losses and putting in place appropriate governance structure for insulating the service providers from extraneous interference while at the same time ensuring transparency and accountability. For ensuring financial viability and sustainability, State Governments would need to restructure the liabilities of the State Electricity Boards to ensure that the successor companies are not burdened with past liabilities. The Central Government would also assist the States, which develop a clear roadmap for turnaround, in arranging transition financing from various sources which shall be linked to predetermined improvements and efficiency gains aimed at attaining financial viability and also putting in place appropriate governance structures.

5.4.4 Conducive business environment in terms of adequate returns and suitable transitional model with predetermined improvements in efficiency parameters in distribution business would be necessary for facilitating funding and attracting investments in distribution. Multi-Year Tariff (MYT) framework is an important structural incentive to minimize risks for utilities and consumers, promote efficiency and rapid reduction of system losses. It would serve public interest through economic efficiency and improved service quality. It would also bring greater predictability to consumer tariffs by restricting tariff adjustments to known indicators such as power purchase prices and inflation indices. Private sector participation in distribution needs to be encouraged for achieving the requisite reduction in transmission and distribution losses and improving the quality of service to the consumers.

5.4.5 The Electricity Act 2003 enables competing generating companies and trading licensees, besides the area distribution licensees, to sell electricity to consumers when open access in distribution is introduced by the State Electricity Regulatory Commissions. As required by the Act, the SERCs shall notify regulations by June 2005 that would enable open access to distribution networks in terms of sub-section 2 of section 42 which stipulates that such open access would be allowed, not later than five years from 27th January 2004 to consumers who require a supply of electricity where the maximum power to be made available at any time exceeds one mega watt. Section 49 of the Act provides that such consumers who have been allowed open access under section 42 may enter into agreement with any person for supply of electricity on such terms and conditions, including tariff, as may be agreed upon by them. While making regulations for open access in distribution, the SERCs will also determine wheeling charges and cross-subsidy surcharge as required under section 42 of the Act.

5.4.6 A time-bound programme should be drawn up by the State Electricity Regulatory Commissions (SERC) for segregation of technical and commercial losses through energy audits. Energy accounting and declaration of its results in each defined unit, as determined by SERCs, should be mandatory not later than March 2007. An action plan for reduction of the losses with adequate investments and suitable improvements in governance should be drawn up. Standards for reliability and quality of supply as well as for loss levels shall also be specified ,from time to time, so as to bring these in line with international practices by year 2012.

5.4.7 One of the key provisions of the Act on competition in distribution is the concept of multiple licensees in the same area of supply through their independent distribution systems. State Governments have full flexibility in carving out distribution zones while restructuring the Government utilities. For grant of second and subsequent distribution licence within the area of an incumbent distribution licensee, a revenue district, a Municipal Council for a smaller urban area or a Municipal Corporation for a larger urban area as defined in the Article 243(Q) of Constitution of India (74th Amendment) may be considered as the minimum area. The Government of India would notify within three months, the requirements for compliance by applicant for second and subsequent distribution licence as envisaged in Section 14 of the Act. With a view to provide benefits of competition to all section of consumers, the second and subsequent licensee for distribution in the same area shall have obligation to supply to all consumers in accordance with provisions of section 43 of the Electricity Act 2003. The SERCs are required to regulate the tariff including connection charges to be recovered by a distribution licensee under the provisions of the Act. This will ensure that second distribution licensee does not resort to cherry picking by demanding unreasonable connection charges from consumers.

5.4.8 The Act mandates supply of electricity through a correct meter within a stipulated period. The Authority should develop regulations as required under Section 55 of the Act within three months.

5.4.9 The Act requires all consumers to be metered within two years. The SERCs may obtain from the Distribution Licensees their metering plans, approve these, and monitor the same. The SERCs should encourage use of pre-paid meters. In the first instance, TOD meters for large consumers with a minimum load of one MVA are also to be encouraged. The SERCs should also put in place independent third-party meter testing arrangements.

5.4.10 Modern information technology systems may be implemented by the utilities on a priority basis, after considering cost and benefits, to facilitate creation of network information and customer data base which will help in management of load, improvement in quality, detection of theft and tampering, customer information and prompt and correct billing and collection . Special emphasis should be placed on consumer indexing and mapping in a time bound manner. Support is being provided for information technology based systems under the Accelerated Power Development and Reforms Programme (APDRP).

5.4.11 High Voltage Distribution System is an effective method for reduction of technical losses, prevention of theft, improved voltage profile and better consumer service. It should be promoted to reduce LT/HT ratio keeping in view the techno economic considerations.

5.4.12 SCADA and data management systems are useful for efficient working of Distribution Systems. A time bound programme for implementation of SCADA and data management system should be obtained from Distribution Licensees and approved by the SERCs keeping in view the techno economic considerations. Efforts should be made to install substation automation equipment in a phased manner.

5.4.13 The Act has provided for stringent measures against theft of electricity. The States and distribution utilities should ensure effective implementation of these provisions. The State Governments may set up Special Courts as envisaged in Section 153 of the Act.

5.5 RECOVERY OF COST OF SERVICES & TARGETTED SUBSIDIES

5.5.1 There is an urgent need for ensuring recovery of cost of service from consumers to make the power sector sustainable.

5.5.2 A minimum level of support may be required to make the electricity affordable for consumers of very poor category. Consumers below poverty line who consume below a specified level, say 30 units per month, may receive special support in terms of tariff which are cross-subsidized. Tariffs for such designated group of consumers will be at least 50 % of the average (overall) cost of supply. This provision will be further re-examined after five years.

5.5.3 Over the last few decades cross-subsidies have increased to unsustainable levels. Cross-subsidies hide inefficiencies and losses in operations. There is urgent need to correct this imbalance without giving tariff shock to consumers. The existing cross-subsidies for other categories of consumers would need to be reduced progressively and gradually.

5.5.4 The State Governments may give advance subsidy to the extent they consider appropriate in terms of section 65 of the Act in which case necessary budget provision would be required to be made in advance so that the utility does not suffer financial problems that may affect its operations. Efforts would be made to ensure that the subsidies reach the targeted beneficiaries in the most transparent and efficient way.

5.6 TECHNOLOGY DEVELOPMENT AND R&D

5.6.1 Effective utilization of all available resources for generation, transmission and distribution of electricity using efficient and cost effective technologies is of paramount importance. Operations and management of vast and complex power systems require coordination among the multiple agencies involved. Effective control of power system at state, regional and national level can be achieved only through use of Information Technology. Application of IT has great potential in reducing technical & commercial losses in distribution and providing consumer friendly services. Integrated resource planning and demand side management would also require adopting state of the art technologies.

Special efforts would be made for research, development demonstration and commercialization of non-conventional energy systems. Such systems would need to meet international standards, specifications and performance parameters.

5.6.2 Efficient technologies, like super critical technology, IGCC etc and large size units would be gradually introduced for generation of electricity as their cost effectiveness is established. Simultaneously, development and deployment of technologies for productive use of fly ash would be given priority and encouragement.

5.6.3 Similarly, cost effective technologies would require to be developed for high voltage power flows over long distances with minimum possible losses. Specific information technology tools need to be developed for meeting the requirements of the electricity industry including highly sophisticated control systems for complex generation and transmission operations, efficient distribution business and user friendly consumer interface.

5.6.4 The country has a strong research and development base in the electricity sector which would be further augmented. R&D activities would be further intensified and Missions will be constituted for achieving desired results in identified priority areas. A suitable funding mechanism would be evolved for promoting R& D in the Power Sector. Large power companies should set aside a portion of their profits for support to R&D.

5.7 COMPETITION AIMED AT CONSUMER BENEFITS

5.7.1 To promote market development, a part of new generating capacities, say 15% may be sold outside long-term PPAs . As the power markets develop, it would be feasible to finance projects with competitive generation costs outside the long-term power purchase agreement framework. In the coming years, a significant portion of the installed capacity of new generating stations could participate in competitive power markets. This will increase the depth of the power markets and provide alternatives for both generators and licensees/consumers and in long run would lead to reduction in tariff.
For achieving this, the policy underscores the following:-

  1. It is the function of the Central Electricity Regulatory Commission to issue license for inter-state trading which would include authorization for trading throughout the country.
  2. The ABT regime introduced by CERC at the national level has had a positive impact. It has also enabled a credible settlement mechanism for intra-day power transfers from licenses with surpluses to licenses experiencing deficits. SERCs are advised to introduce the ABT regime at the State level within one year.
  3. Captive generating plants should be permitted to sell electricity to licensees and consumers when they are allowed open access by SERCs under section 42 of the Act .
  4. Development of power market would need to be undertaken by the Appropriate Commission in consultation with all concerned.
  5. The Central Commission and the State Commissions are empowered to make regulations under section 178 and section 181 of the Act respectively. These regulations will ensure implementation of various provisions of the Act regarding encouragement to competition and also consumer protection. The Regulatory Commissions are advised to notify various regulations expeditiously.
  6. Enabling regulations for inter and intra State trading and also regulations on power exchange shall be notified by the appropriate Commissions within six months.

5.8 FINANCING POWER SECTOR PROGRAMMES INCLUDING PRIVATE SECTOR PARTICIPATION

5.8.1 To meet the objective of rapid economic growth and “power for all” including household electrification, it is estimated that an investment of the order of Rs.9,00,000 crores at 2002-03 price level would be required to finance generation, transmission, sub-transmission, distribution and rural electrification projects. Power being most crucial infrastructure, public sector investments, both at the Central Government and State Governments, will have to be stepped up. Considering the magnitude of the expansion of the sector required, a sizeable part of the investments will also need to be brought in from the private sector. The Act creates a conducive environment for investments in all segments of the industry, both for public sector and private sector, by removing barrier to entry in different segments. Section 63 of the Act provides for participation of suppliers on competitive basis in different segments which will further encourage private sector investment. Public service obligations like increasing access to electricity to rural households and small and marginal farmers have highest priority over public finances.

5.8.2 The public sector should be able to raise internal resources so as to at least meet the equity requirement of investments even after suitable gross budgetary support from the Government at the Centre and in the states in order to complete their on-going projects in a time-bound manner. Expansion of public sector investments would be dependent on the financial viability of the proposed projects. It would, therefore, be imperative that an appropriate surplus is generated through return on investments and, at the same time, depreciation reserve created so as to fully meet the debt service obligation. This will not only enable financial closure but also bankability of the project would be improved for expansion programmes, with the Central and State level public sector organizations, as also private sector projects, being in a position to fulfil their obligations toward equity funding and debt repayments.

5.8.3 Under sub-section (2) of Section 42 of the Act, a surcharge is to be levied by the respective State Commissions on consumers switching to alternate supplies under open access. This is to compensate the host distribution licensee serving such consumers who are permitted open access under section 42(2), for loss of the cross-subsidy element built into the tariff of such consumers. An additional surcharge may also be levied under sub-section (4) of Section 42 for meeting the fixed cost of the distribution licensee arising out of his obligation to supply in cases where consumers are allowed open access. The amount of surcharge and additional surcharge levied from consumers who are permitted open access should not become so onerous that it eliminates competition that is intended to be fostered in generation and supply of power directly to consumers through the provision of Open Access under Section 42(2) of the Act. Further it is essential that the Surcharge be reduced progressively in step with the reduction of cross-subsidies as foreseen in Section 42(2) of the Electricity Act 2003.

5.8.4 Capital is scarce. Private sector will have multiple options for investments. Return on investment will, therefore, need to be provided in a manner that the sector is able to attract adequate investments at par with, if not in preference to, investment opportunities in other sectors. This would obviously be based on a clear understanding and evaluation of opportunities and risks. An appropriate balance will have to be maintained between the interests of consumers and the need for investments.

5.8.5 All efforts will have to be made to improve the efficiency of operations in all the segments of the industry. Suitable performance norms of operations together with incentives and disincentives will need to be evolved along with appropriate arrangement for sharing the gains of efficient operations with the consumers . This will ensure protection of consumers’ interests on the one hand and provide motivation for improving the efficiency of operations on the other.

5.8.6 Competition will bring significant benefits to consumers , in which case, it is competition which will determine the price rather than any cost plus exercise on the basis of operating norms and parameters. All efforts will need to be made to bring the power industry to this situation as early as possible, in the overall interest of consumers. Detailed guidelines for competitive bidding as stipulated in section 63 of the Act have been issued by the Central Government.

5.8.7 It will be necessary that all the generating companies, transmission licensees and distribution licensees receive due payments for effective discharge of their operational obligations as also for enabling them to make fresh investments needed for the expansion programmes. Financial viability of operations and businesses would, therefore, be essential for growth and development of the sector. Concerted efforts would be required for restoring the financial health of the sector. For this purpose, tariff rationalization would need to be ensured by the SERCs. This would also include differential pricing for base, intermediate and peak power.

5.8.8 Steps would also be taken to address the need for regulatory certainty based on independence of the regulatory commissions and transparency in their functioning to generate investor’s confidence.

5.8.9 Role of private participation in generation, transmission and distribution would become increasingly critical in view of the rapidly growing investment needs of the sector. The Central Government and the State Governments need to develop workable and successful models for public private partnership. This would also enable leveraging private investment with the public sector finances. Mechanisms for continuous dialogue with industry for streamlining procedures for encouraging private participation in power sector need to be put in place.

Transmission & Distribution Losses

5.8.10 It would have to be clearly recognized that Power Sector will remain unviable until T&D losses are brought down significantly and rapidly. A large number of States have been reporting losses of over 40% in the recent years. By any standards, these are unsustainable and imply a steady decline of power sector operations. Continuation of the present level of losses would not only pose a threat to the power sector operations but also jeopardize the growth prospects of the economy as a whole. No reforms can succeed in the midst of such large pilferages on a continuing basis.

The State Governments would prepare a Five Year Plan with annual milestones to bring down these losses expeditiously. Community participation, effective enforcement, incentives for entities, staff and consumers, and technological upgradation should form part of campaign efforts for reducing these losses. The Central Government will provide incentive based assistance to States that are able to reduce losses as per agreed programmes.

5.9 ENERGY CONSERVATION

5.9.1 There is a significant potential of energy savings through energy efficiency and demand side management measures. In order to minimize the overall requirement, energy conservation and demand side management (DSM) is being accorded high priority. The Energy Conservation Act has been enacted and the Bureau of Energy Efficiency has been setup.

5.9.2 The potential number of installations where demand side management and energy conservation measures are to be carried out is very large. Bureau of Energy Efficiency (BEE) shall initiate action in this regard. BEE would also make available the estimated conservation and DSM potential, its staged implementation along with cost estimates for consideration in the planning process for National Electricity Plan.

5.9.3 Periodic energy audits have been made compulsory for power intensive industries under the Energy Conservation Act. Other industries may also be encouraged to adopt energy audits and energy conservation measures. Energy conservation measures shall be adopted in all Government buildings for which saving potential has been estimated to be about 30% energy. Solar water heating systems and solar passive architecture can contribute significantly to this effort.

5.9.4 In the field of energy conservation initial approach would be voluntary and self-regulating with emphasis on labelling of appliances. Gradually as awareness increases, a more regulatory approach of setting standards would be followed.

5.9.5 In the agriculture sector, the pump sets and the water delivery system engineered for high efficiency would be promoted. In the industrial sector, energy efficient technologies should be used and energy audits carried out to indicate scope for energy conservation measures. Motors and drive system are the major source of high consumption in Agricultural and Industrial Sector. These need to be addressed. Energy efficient lighting technologies should also be adopted in industries, commercial and domestic establishments.

5.9.6 In order to reduce the requirements for capacity additions, the difference between electrical power demand during peak periods and off-peak periods would have to be reduced. Suitable load management techniques should be adopted for this purpose. Differential tariff structure for peak and off peak supply and metering arrangements (Time of Day metering) should be conducive to load management objectives. Regulatory Commissions should ensure adherence to energy efficiency standards by utilities.

5.9.7 For effective implementation of energy conservation measures, role of Energy Service Companies would be enlarged. Steps would be taken to encourage and incentivise emergence of such companies.

5.9.8 A national campaign for bringing about awareness about energy conservation would be essential to achieve efficient consumption of electricity.

5.9.9. A National Action Plan has been developed. Progress on all the proposed measures will be monitored with reference to the specific plans of action.

5.10 ENVIRONMENTAL ISSUES

5.10.1 Environmental concerns would be suitably addressed through appropriate advance action by way of comprehensive Environmental Impact Assessment and implementation of Environment Action Plan (EAP).

5.10.2 Steps would be taken for coordinating the efforts for streamlining the procedures in regard to grant of environmental clearances including setting up of ‘Land Bank’ and ‘Forest Bank’.

5.10.3 Appropriate catchment area treatment for hydro projects would also be ensured and monitored.

5.10.4 Setting up of coal washeries will be encouraged. Suitable steps would also be taken so that utilization of fly ash is ensured as per environmental guidelines.

5.10.5 Setting up of municipal solid waste energy projects in urban areas and recovery of energy from industrial effluents will also be encouraged with a view to reducing environmental pollution apart from generating additional energy.

5.10.6 Full compliance with prescribed environmental norms and standards must be achieved in operations of all generating plants.

5.11 TRAINING AND HUMAN RESOURCE DEVELOPMENT

In the new reforms framework ushered by Electricity Act 2003, it is particularly important that the electricity industry has access to properly trained human resource. Therefore, concerted action would be taken for augmenting training infrastructure so that adequate well-trained human resource is made available as per the need of the industry. Special attention would need to be paid by the industry for establishing training infrastructure in the field of electricity distribution, regulation, trading and power markets. Efforts should be made so that personnel of electricity supply industry both in the private and public sector become more cost-conscious and consumer-friendly.

5.12 COGENERATION AND NON-CONVENTIONAL ENERGY SOURCES

5.12.1 Non-conventional sources of energy being the most environment friendly there is an urgent need to promote generation of electricity based on such sources of energy. For this purpose, efforts need to be made to reduce the capital cost of projects based on non-conventional and renewable sources of energy. Cost of energy can also be reduced by promoting competition within such projects. At the same time, adequate promotional measures would also have to be taken for development of technologies and a sustained growth of these sources.

5.12.2 The Electricity Act 2003 provides that co-generation and generation of electricity from non-conventional sources would be promoted by the SERCs by providing suitable measures for connectivity with grid and sale of electricity to any person and also by specifying, for purchase of electricity from such sources, a percentage of the total consumption of electricity in the area of a distribution licensee. Such percentage for purchase of power from non-conventional sources should be made applicable for the tariffs to be determined by the SERCs at the earliest. Progressively the share of electricity from non-conventional sources would need to be increased as prescribed by State Electricity Regulatory Commissions. Such purchase by distribution companies shall be through competitive bidding process. Considering the fact that it will take some time before non-conventional technologies compete, in terms of cost, with conventional sources, the Commission may determine an appropriate differential in prices to promote these technologies.

5.12.3 Industries in which both process heat and electricity are needed are well suited for cogeneration of electricity. A significant potential for cogeneration exists in the country, particularly in the sugar industry. SERCs may promote arrangements between the co-generator and the concerned distribution licensee for purchase of surplus power from such plants. Cogeneration system also needs to be encouraged in the overall interest of energy efficiency and also grid stability.

5.13 PROTECTION OF CONSUMER INTERESTS AND QUALITY STANDARDS

5.13.1 Appropriate Commission should regulate utilities based on pre-determined indices on quality of power supply. Parameters should include, amongst others, frequency and duration of interruption, voltage parameters, harmonics, transformer failure rates, waiting time for restoration of supply, percentage defective meters and waiting list of new connections. The Appropriate Commissions would specify expected standards of performance.

5.13.2 Reliability Index (RI) of supply of power to consumers should be indicated by the distribution licensee. A road map for declaration of RI for all cities and towns up to the District Headquarter towns as also for rural areas, should be drawn by up SERCs. The data of RI should be compiled and published by CEA.

5.13.3 It is advised that all State Commissions should formulate the guidelines regarding setting up of grievance redressal forum by the licensees as also the regulations regarding the Ombudsman and also appoint/designate the Ombudsman within six months.

5.13.4 The Central Government, the State Governments and Electricity Regulatory Commissions should facilitate capacity building of consumer groups and their effective representation before the Regulatory Commissions. This will enhance the efficacy of regulatory process.

6.0 COORDINATED DEVELOPMENT

6.1 Electricity being a concurrent subject, a well-coordinated approach would be necessary for development of the power sector. This is essential for the attainment of the objective of providing electricity-access to all households in next five years and providing reliable uninterrupted quality power supply to all consumers. The State Governments have a major role, particularly in creation of generation capacity, state level transmission and distribution. The Central Government would assist the States in the attainment of this objective. It would be playing a supportive role in fresh capacity addition and a major role in development of the National Grid. The State Governments need to ensure the success of reforms and restoration of financial health in distribution, which alone can enable the creation of requisite generation capacity. The Regulatory Commissions have the responsibility of ensuring that the regulatory processes facilitate the attainment of this objective. They also have a developmental role whose fulfillment would need a less formal and a consultative process.

The Electricity Act, 2003 also provides for mechanisms like “Coordination forum” and “Advisory Committees” to facilitate consultative process. The Act also requires the Regulatory Commissions to ensure transparency in exercise of their powers and in discharge of their functions. This in no way means that the Regulatory Commissions should follow formal judicial approach. In fact, quick disposal of matters would require an approach involving consultations with stakeholders.

6.2 Under the Act, the Regulatory Commissions are required to perform wide-ranging responsibilities. The appropriate Governments need to take steps to attract regulatory personnel with required background. The Govt. of India would promote the institutional capability to provide training to raise regulatory capacity in terms of the required expertise and skill sets. The appropriate Governments should provide financial autonomy to the Regulatory Commissions. The Act provides that the appropriate Government shall constitute a Fund under section 99 or section 103 of the Act, as the case may be, to be called as Regulatory Commission Fund. The State Governments are advised to establish this Fund expeditiously.

(Ajay Shankar)
Additional Secretary to the Government of India