Challenges in implementing
[R V Shahi's Weekly Column for
Infraline, March 31, 2008]
There are a number of
features in the Electricity Act 2003 which aim at radical restructuring of the
sector and at facilitating creation of competitive environment. The central
theme, in fact, of the whole Act is protection of consumers' interests. Open
access is one of the most powerful tools provided in the Act inasmuchas it
creates scope for giving options to consumers to choose their suppliers. In the
Act, open access has been defined under Section 2 (47) as "Open access means the
non-discriminatory provision for the use of transmission lines or distribution
system or associated facilities with such lines or system by any licensee or
consumer or a person engaged in generation in accordance with the regulations
specified by the Appropriate Commission". It may be seen that the option has
been provided for consumers, for intermediaries like trading licensees or
distribution licensees or even to generating companies. Each one of them is
entitled to the use of transmission system or distribution infrastructure in a
When the Electricity Bill had
been referred to the Standing Committee of Parliament on Energy by the
Parliament, the issue of open access was deliberated at length. In their report
the Standing Committee has particularly emphasized the need for introducing this
important instrument of bringing about competition in the sector. An extract
from the report of the Standing Committee is given below:
"The Committee feel that
provision of open access is key to the power sector reforms particularly on
distribution. However, due to different ground realities in each state it may
not be possible to do so from an appointed date. The Committee, however,
recommend that open access may be introduced in a phased manner, within a
definite time frame."
Of late, concerns have been
raised about the slow pace of open access so much so that even after more than
five years of power trading, the volume continues to be hovering around 3%. To
discuss all the issues concerning open access and more particularly the problems
which stand in the way of open access in distribution, as well as in
transmission moving forward speedily, a Round Table was organized, on 26th
March; by Infraline Energy in association with IDFC. I had the privilege
of introducing the subject and coordinating the discussion. In the introductory
remarks I made the following observations:
Electricity Bill was being debated in the Parliament (Lok Sabha), I recall,
several Hon'ble Members mentioned about the Sections relating to "Open Access".
In the Bill, the introduction of open access had been left to the Regulatory
Commissions of the States to introduce this system in distribution in phases.
The concern of the Hon'ble Members was that this left a lot of discretion with
the Commissions. There could be a situation in which the Commissions could
prolong this process, may introduce it in a manner and in a time frame that they
could decide and that such a time frame could be as long as ten to fifteen
years. This was not really the spirit of the Electricity Bill. Therefore, this
provision needed to be more focused so that there was a compulsion on the
Regulatory Commissions to introduce open access in a time bound manner. This
was also the recommendation of the Standing Committee of Parliament.
Though the Bill
was passed in the Lok Sabha without any amendment, and therefore the provision
remained as it was, when the Bill came to the Rajya Sabha, it got stuck-up.
There were a number of amendments that were proposed by Hon'ble Members of
several parties including Congress which was then in opposition. More than
eighty amendments had been suggested. We discussed with the Hon'ble Members
outside the Parliament and tried to understand the concerns as also utilised
these opportunities to clarify the rationale and the view points of the
government. Finally only four issues remained unresolved. On the specific
understanding that the government would introduce amendments in the next session
of Parliament on these four issues, the Bill was passed without any change. The
most important of these four issues, on which amendment was agreed, was in
relation to the open access. Accordingly, in the amendment was introduced and
subsequently passed in January, 2004. The Regulatory Commissions were obligated
to introduce open access, in a time bound manner, latest by January, 2009.
Section 42 (2)
provides that the State Commission shall introduce open access in such phases
and subject to such conditions as may be as specified within one year of the
effective date of the Act and will specify the extent of open access in
successive phases. It is this provision which was required to be amended in a
manner that the compulsion on Regulatory Commissions for introduction of open
access in a time bound manner ensures removal of wide discretions. Accordingly,
the following provision was added through the amendment.
"Provided also that the State
Commission shall, not later than five years from the date of commencement of the
Electricity (Amendment) Act, 2003, by regulations, provide such open access to
all consumers who require a supply of electricity where the maximum power to be
made available at any time exceeds one megawatt.
Where any person,
whose premises are situated within the area of supply of a distribution
licensee, (not being a local authority engaged in the business of distribution
of electricity before the appointed date) requires a supply of electricity from
a generating company or any licensee other than such distribution licensee, such
person may, by notice, require the distribution licensee for wheeling such
electricity in accordance with regulations made by the State Commission and the
duties of the distribution licensee with respect to such supply shall be of a
common carrier providing non-discriminatory open access.
Where the State
Commission permits a consumer or class of consumers to receive supply of
electricity from a person other than the distribution licensee of his area of
supply, such consumer shall be liable to pay an additional surcharge on the
charges of wheeling, as may be specified by the State Commission, to meet the
fixed cost of such distribution licensee arising out of his obligation to
The priority of
this issue was considered so seriously that when the National Electricity Policy
was decided by the Union Cabinet, and notified by the Ministry of Power in
February, 2005, the need for time bound actions was further reiterated. Clause
5.4.5 of the Electricity Policy obliges the Commissions to notify regulations on
open access by June, 2005.
"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 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."
most of the Regulatory Commissions have remained heavily preoccupied on issues
concerning tariff determination and their role to develop electricity market has
more or less remained in the background. For initial few years of the
Regulatory Commissions such an approach was in order. No doubt, a number of
Commissions have come out with various regulations and judgements of far
reaching consequences, and these are positive developments. But, even after
five to six years, the fact that electricity market development related
initiatives have remained rather subdued, is a matter of serious concern.
National Electricity Policy 2005 expected very definite and meaningful
contribution from the Commissions. Clause 5.7 of the Electricity Policy amply
explains the expectation from various authorities and agencies.
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.
this, the policy underscores the following:-
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
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.
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
power market would need to be undertaken by the Appropriate Commission in
consultation with all concerned.
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.
regulations for inter and intra State trading and also regulations on power
exchange shall be notified by the Appropriate Commissions within six months."
A lot of
suggestions have been made in various forums with regard to the computation of
cross subsidy surcharge. Various State Regulatory Commissions have also
determined and notified the rates of cross subsidy surcharge to be borne by
consumers of open access. The general perception is that except for a few
States, in most cases they are very high and therefore restrictive of this
initiative to be effectively implemented and availed of. In this regard it may
be relevant to give an extract of the Electricity Tariff Policy notified in
January, 2006, in relation to the cross subsidy surcharge as brought out in
"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
observations are advanced to suggest that at macro level whether it is the
aspect of legislation or of policy instrument, a number of provisions have been
made but it is equally important that implementations are seriously pursued by
concerned authorities as well as relevant stake holders. Having laws and
policies may be important requirements but merely having them may not be
enough. They could lead to desired benefits only if implementation is serious
Shri J.L. Bajaj, the first
Chairman of the U.P. State Regulatory Commission made very important
observations and raised a few important issues:
of open access is a very major strength to consumers because it gives them a
freedom to choose their suppliers. Obviously therefore this provision would, to
a great extent, condition the response and behavior of distribution utilities in
a manner which could be of great benefit to their consumers.
Tribunal for Electricity heard an appeal against the judgement of the Andhra
Pradesh Electricity Regulatory Commission and the following observations from
their judgement are of great relevance:
relating to open access in the Electricity Act is the backbone of competition
and corner stone of the Act.
did not agree with the Regulatory Commission that the Govt. of India did not
have the authority to suggest about the cross subsidy surcharge.
the Andhra Pradesh Regulatory Commission to re-work the cross subsidy surcharge.
also observed that nowhere in the Act or in Policy it has been specifically
stipulated that the cross subsidy surcharge has to be equal to the level of
cross subsidy. Therefore such a surcharge need not be equal to the cross
subsidy. The judgement of the Appellate Tribunal is unambiguous and sets at rest
all the uncertainties whether the extent of cross subsidy surcharge should be so
high in order to cover the cross subsidy that exists in the tariff structure.
In the last
five years, Transmission has received more attention than ever in the past. In
spite of this there is a fairly wide gap between capacity of the system and
capability of the system. It is understood that capability is only about 70% of
the capacity. At State level we need to augment the State transmission and
sub-transmission where the gaps are even much more. Fortunately agencies like
Asian Development Bank (ADB) and Japanese Bank of International Cooperation
(JBIC) have been very active in some of the States.
perception of many, Unscheduled Interchange (U.I.) charges are seen as solution
to all the power problems. It is, no doubt, a useful tool, but it does not have
the ability to adequately address many of the issues, e.g. it cannot and it is
not able to enlarge the transmission capability and cannot handle the problems
relating to transmission constraints. In fact if we say that in some ways UI
Mechanism has been a road block in promoting trading, this may not be an over
Transmission Regulation issued by Central Electricity Regulatory Commission in
2004 led to escalation of transmission charges because of pancaking of
transmission charges of different regions.
instances where it is seen that when captive plants approach for open access
State Load Despatch Center (SLDC) neither accords approval nor does it refuse.
There is no accountability to handle such situation of the stalemate. Many
States have yet to fix the transmission charges and wheeling charges. U.P. and
Uttranchal have decided to determine cross subsidy surcharge on a case to case
basis. How would any generator or trader or consumer be able to work on any of
their initiatives in such an uncertain situation?
Some of the
State Regulatory Commissions have notified the cross subsidy surcharges which
are so high that practically open access would be impossible. The rates are
Andhra Pradesh (181 Paise), Tamil Nadu (108 Paise), Gujarat (100 Paise), Madhya
Pradesh (103 Paise), Assam (137 Paise), Himachal Pradesh (149 Paise). As
against these there are also State Commissions which have tried to bring them
within workable limits - West Bengal (50 Paise), Maharashtra (13 Paise).
While it is
necessary that all steps should be taken to encourage open access, it is equally
necessary that we examine some of the following issues so that open access, if
implemented to a reasonable level, yields desired benefits:
reliability of supply improve through open access?
distributor ensure exemption from load shedding?
to set service standards for network operators?
Is open access
going to lead to higher generation capacity?
Even Ultra Mega
Project launched by Ministry of Power did not provide for 15% of the capacity to
be sold on merchant basis?
Let me attempt to elaborate
and clarify these issues brought out by Mr. Bajaj :
Will the reliability of supply improve through open access? Reliability
would not depend only on supply of power up to the distribution utility which
will be the infrastructure provider. If the distribution utility carries the
power of some other supplier for a customer, it will depend on the type of the
distribution network, its maintenance and promptness with which the network
related problems are attended to. Unless that happens open access, as such,
cannot lead to reliability of supply.
Will the distributor ensure exemption from load shedding? If an open
access consumer pays for transmission charges, wheeling charges, cross subsidy
surcharge, he would obviously expect that he gets uninterrupted power supply.
This can be ensured provided the Regulatory Commissions notify orders to this
effect. This alone can raise the level of confidence of all the participants of
Regulators need to set service standards for network operators?
Normally, almost all the Regulatory Commissions have notified the service
standard for distribution licensees. What is important is their enforcement.
If open access has to succeed, and for which creating right level of confidence
among open access consumers as well as their suppliers would be a prerequisite,
enforcement of service standards would be a must.
Is open access going to lead to higher generation capacity? Expectations
about success of open access divorced from availability of larger amount of
power would be meaningless. Certainty about providing transmission system,
appropriate congestion management, a friendly approach of commission on this
issue, a less hostile attitude of the State Distribution Utilities/Private
Utilities alongwith the State governments, will lead to a level of confidence
among merchant plant developers, and other power generators having excess
capacity, which eventually has the potential of creating and providing larger
amount of power in the system. A lot will therefore depend on the approach of
all these concerned agencies on this subject. If such an approach is positively
oriented with a factor of allowance and benefit of doubt, the open access will
succeed and fetch more generation. If on the other hand they approach it with
doubts and suspicion and with a degree of skepticism it is bound to fail and,
therefore, would be unable to bring more such generation capacities untied with
long term contracts.
Even Ultra Mega Project launched by Ministry of Power did not provide for
15% of the capacity to be sold on merchant basis? It needs to be clarified that
when we conceptualized the UMP Scheme, we were quite clear that for the first
two projects we may allow the total capacity through PPA so as to raise the
level of confidence of developers as well as lenders, and for subsequent
projects 15% of capacity could be allowed to be kept out of PPA. This might
lead to even better tariff to be quoted by developer. This is an important
matter and needs to be pursued with the Ministry of Power.
Shri Shashi Shekhar,
Director, Power Trading Corporation & Managing Director of India Energy
Exchange, brought out a number of important points as summarized below:
Standing Committee of Parliament examined the Electricity Bill, it had
recommended 15% of capacity for developing power market. We need to work
As per the
Electricity Act, January 2009, is the deadline for open access in distribution
for all consumers of more than 1MW. The progress and preparation is such that
it seems unlikely that this could be done in a meaningful way.
issues need consideration to introduce open access and derive the desired
At present the
open access in transmission is either on short term basis covering periods upto
three months, or on long term basis of 25 years. These are not realistic
stipulations. Power markets having different types of options will have to be
provided. Obviously the present dispensation disallows transactions of one
year, five years, ten years or so. The ground reality could be that this type
of sale and purchase may be very extensive. Besides, combined cycle power
projects have the life of 15 years, imported coal arrangements of long term
nature could be of 5, 10 or 15 years tenure. In the light of these following
time slots could promote, in a practical way, open access on transmission:
Short term - 3 months
Intermediate term - 3 months
to 5 years
Medium term - 5 to 15 years
Long term - more than 15
Even in the
best possible situation, when a generator or a trader has made arrangement for
short term supply of power to a distribution licensee or to a consumer, it is
quite practical to expect that within that short duration there could be
eventualities like temporary outages of a power generating set and therefore the
amount of power supplied during that period could reduce. In such situations
downward revisions of schedules should be permitted. Unless such ground
realities are accepted and appropriately dealt with, there could be only
discouragement for open access initiatives.
Exchange becomes operational, we could expect discovery of rates in the
most transparent manner. At present a lot of capacities are locked up in
captive plants in co-generation plants and even in bio-mass power
generation facilities. These need to be facilitated and brought to the
The Executive Director of
Power Grid Mr. S.K. Sonee, who has the responsibility of National Load Despatch
Center and also indirectly the Regional Load Despatch Center, and handles the
requests for open access on short term basis, made the following observations:
should be seen as a success story. So far almost 17,000 applications for open
access have been processed and transactions have happened. 90 billion units of
power have been handled through short term open access. More than 95% of
requests received were cleared. Only in about 1% cases transactions could not
take place because of system constraints. Of course, in 3 to 4% cases
transactions could not take place due to refusals by State Load Despatch
By and large,
no generation is bottled up today on account of transmission constraint. Almost
100 players (generators, traders, open access customers including licensees) are
participants in the process.
It has been
possible to carry power from plants in Kerala to Punjab and similarly from
plants in West Bengal to Punjab and Rajasthan. This has resulted in reducing
the shortages in these States and also enabled improved generation and increased
Plant Load Factor in a number of power stations.
On a single day
(last Holi festival) as against the total supply of 70,000 MW, as much as 8,000
MW was transacted through open access system.
It is often
mentioned that we should have improved Congestion Management. It is to be noted
that in our country we have one of the least congestions. If we want to have
totally congestion free situation, we may need to over invest in new lines and
sub-stations, which may perhaps not be economical.
It is true that
excessive reliance on unscheduled interchange arrangement, for which higher
payments are required, is not good and therefore we must find out other methods
also to handle the situation. Another problem with UI is that it does not
differentiate the rate from one location to another. Unless this is recognized
and differentiation is introduced there would be some inhibiting effect on open
One of the
reasons for open access not being fully encouraged is lack of functional
autonomy to State Load Despatch Centers. They should operate with the required
degree of freedom as in case of Regional Load Despatch Center.
presentations were followed by very useful exchange of views and extensive
interactions. Some of the useful conclusions which emerged are outlined below:
arrangement of short term upto three months and long term of 25 years needs to
be restricted if we have to take into account the practical requirements of the
industry and consumers. The classifications of 3 months, 3 months to 5 years, 5
years to 15 years and more than 15 years could perhaps be more workable
groupings which will meet the requirement and encourage the process of open
that aiming at eliminating congestion with large investments may not be optimal,
needs to be challenged. This approach could be fully in order for a system
which is stabilized and augmentation required is only marginal. In Indian
context when the growth of power sector is slated to be 8 to 10% per year, we
need not be unduly concerned on excess build-up on transmission. Any so called
excess, in a couple of years, can be experiencing the need for further
surcharge should be re-worked in a manner that it encourages and facilitate open
access rather than constraints this initiative. There is already a direction of
the Appellate Tribunal, with unambiguous approach on the subject, which needs to
Open access in
distribution to consumers of more than 1 MW could be reality only if the network
providers are required to maintain the system in a manner that such consumers
get reliable power supply and they are not subjected to load shedding. This
stipulation needs to be clearly brought out through regulations by State
Merchant Capacity in new projects or through expansion in old projects should
receive right encouragement.
of permitting short term Open Access must recognize practical problem of outages
of generating sets and therefore downward revision of schedule should be
Power may need to take action on future Ultra Mega Projects providing 15% of
Merchant Capacity in line with the thinking earlier.