EA 2003

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

2. Table of Content (TOC)
• Central Electricity Regulatory Commission
(CERC)
• State Electricity Regulatory Commission (SERC)
• Electricity Act, 2003
• Tariff Policy

3. What do you mean by Regulation??
Oxford Dictionary
Pronunciation:/rɛgjʊˈleʃ(ə)n/
ɪ
Noun
• a rule or directive made and maintained by an authority.
[mass noun]
• the action or process of regulating or being regulated

4. Why Need Regulations
& Regulators for Electricity??
• To ensure consumers benefits from regulation in terms of reduced
prices and better services through a competitive market in
electricity supply.
• To encourage competition with respect to not only generation, but
also other areas, including transmission and distribution of
electricity.
• To adjudicate upon disputes involving the Generating companies
and transmission utilities in matters relating to tariffs.
• To deal with matters as a quasi-judicial body relating to the tariffs,
generation, transmission, distribution, and trading and use of
electricity.

5. Central Electricity Regulatory
Commission (CERC)
• A key regulator of power sector of India.
• A statutory body functioning with quasi-judicial status under sec -
76 of the Electricity Act 2003.
• Initiated on 24th July, 1998, under the Ministry of Power’s Electricity
Regulatory Commissions Act, 1998.
• Agency executives:
– Dr. Pramod Deo, Chairperson
– Mr. S. Jayaraman, Member
– Mr. M. Deena Dayalan, Member

6. Functions of CERC:
• To regulate the tariff of generating companies owned by Central
Government.
• To promote competition, efficiency and economy and safety in the
activities of electrical industry.
• To adjudicate upon disputes and differences between the units and
undertakings controlled by the Central Government, Independent
Power Producers (IPPs) and licensees.
• To issue licenses to persons to function as transmission licensees
and electricity traders with respect to their interstate operations.
• To promote the development of the power market & fix the trading
margin in the interstate trading of electricity.

7. Evolution of Electricity Tariff and Role of
CERC
• A system of Single Part Tariff was used for pricing of thermal power
prior to 1992.
• The Single Part Tariff for a station was calculated to cover both the
fixed cost as well as the variable cost at a certain generation level.
• The scheme of Two Part Tariff was adopted in 1992 for NTPC
stations on the recommendations of the KP Rao committee.
• The scheme provided for linking of incentive and disincentive with
Plant Load Factor plus deemed generation, which in effect is Plant
availability.

8. Standard Tariff Model of CERC
• Tariff for supply of electricity shall comprise two parts:
– Fixed or Capacity Charges (For recovery of Annual Fixed Cost)
– Energy or Variable Charges (For recovery of Primary Fuel Cost)
• The Annual Fixed Cost of a generating station or a transmission system
comprises:
– Return on Equity
– Interest on loan capital
– Depreciation
– Interest on Working Capital
– Operation and Maintenance expenses
– Cost of secondary fuel oil (for Coal-based and Lignite-based generating
stations)
– Special allowances for Renovation and Modernization

9. Snapshot of CERC’s advice to GOI
• Regarding time frame for tariff based competitive bidding (01-06-
2010).
• Regarding the Open Access (18-05-2010).
• Regarding the issues related to regulation of electricity forward
contracts and electricity derivatives markets (19-02-2010).
• Regarding ring-fencing of State Load Dispatch Centers (11-08-2009).
• Regarding the rates of depreciation to be notified under the
Companies Act. (20-04-2009).
• Regarding designating electricity trader by Central Government for
import of electricity from other countries (13-04-2009).

10. Relation with other Power Sector Bodies (MoP, CEA,
Appellate Tribunal)
• Appellate Tribunal and CERC
– Appellate Tribunal has been established by Central Government for those who are not
satisfied with the CERC order or with a state.
– The tribunal has the authority to overrule or amend that order, just like the Income-Tax
tribunal.
– The tribunal has to be approached within 45 days of the aggrieved person getting the order.
• Central Electricity Authority (CEA) and CERC
– CEA takes care of Planning Regulation where power demand and supply gap has to be
regulated. Also, Construction Regulation where construction of Thermal, Hydro, Gas Based
Power Plants and Power systems are regulated in the right manner.
– CERC takes care of the third aspect of Tariff regulation, a purely economic exercise.
• Ministry of Power (MoP) and CERC
– MoP entrusts CERC for providing escalation rate for coal and gas, inflation rate based on
Wholesale Price Index (WPI), and Consumer Price Index (CPI), discount rate, and dollar-rupee
exchange variation rate.
• Power Exchange Companies and CERC
– CERC has issued the Power Market Regulations, 2010, which will govern transactions related
to “Energy trading” by companies such as Indian Energy Exchange (IEX), Power Exchange India
(PXI) and National Power Exchange (NPX).

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

12. State Electricity Regulatory
Commission

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

14. State Load Dispatch Centre
• The State Load Dispatch Center is the apex
body to ensure integrated operation of the
power system.
• It is the strategic functional for discharging
various functions specified under Section 32
of Indian Electricity Act 2003.

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

16. Key Issues in State Electricity Board
• Low profit for transmission utility
• High Losses
• AT & C losses
• Metering efficiency low

17. Break-up of Electricity Board
Source: Tamil Nadu Electricity Board

18. Why Unbundling of SEB??
• Higher efficiency levels leading to lower costs and
profitability.
• It would result in higher growth and development
of this economically critical sector.
• Used to increase generating capacity and
distribution.

19. ELECTRICITY ACT 2003
ELECTRICITY ACT 2003

20. POWER GENERATION :
• Electricity Generation is made as non licensing activity.
• Clearance of CEA is mandatory only for hydro projects, due to
concern of dam safety and inter-State issues..
• Removal of Restriction by SEB on captive power generation.
• Necessary weightage should be added to use the power generated by
Renewables.
• The Generators can sell electricity to any licensee or consumers
directly but the tariff for sale of generated electricity will be fixed by
government.
• The projects obtained by competitive bidding will be protected with
same tariffs that existed at the time of bidding.

21. POWER TRANSMISSION
• There would be two deemed licensees CTU and STU for Planning and Co ordinated
system of transmission of electricity.
• All the Transmission companies should be licensed by the Appropriate Commission
after consideration by respective transmission utilities.
• There would be a National Load dispatch Centre which is owned by the government
company/organization for optimum scheduling and dispatch of electricity to regional
dispatch centers.
• The Load Dispatch Centre/Transmission Utility/Transmission Licensee not to trade in
power to Facilitate genuine competition between generators
• Open access to the transmission lines to be provided to distribution licensees,
generating companies, which will generate competitive pressures and lead to gradual
cost reduction.

22. POWER DISTRIBUTION
• Distribution is to be licensed by respective SERCs.
• Distribution licensee free to take up generation and vice versa. This would
facilitate private sector participation without Government Intrusion
• Retail tariff to be determined by the Regulatory Commission.
• Metering made mandatory.
• Provision for suspension/revocation of license by Regulatory Commission .
• Open access in distribution to be allowed by SERC in phases.
• Licensee’s obligation to supply to a particular area with additional tariff.
• The customer has a choice to choose his supplier other than licensee at an
additional surcharge.

23. CONSUMER PROTECTION
• Consumer to be given connection within stipulated time.
• Penalty in the event of failure to give connection .
• Payment of interest on security deposit.
• Regulatory commission to specify Electricity supply code to be followed by
licensees.
• Licensees required to meet standards of performance specified by
Regulatory Commission. Failure to meet standards makes them liable to
pay compensation to affected person within ninety days.
• Licensee to furnish to the Commission periodical information on standards
of performance.

24. TARRIFF
• Regulatory Commission to determine tariff for supply of electricity by
generating co. on long/medium term contracts.
• No tariff fixation by regulatory commission if tariff is determined
through competitive bidding or where consumers, on being allowed
open access enter into agreement with generators/traders.
• Consumer tariff should progressively reduce cross subsidies and move
towards actual cost of supply.
• State Government may provide subsidy in advance through the budget
for specified target groups if it requires the tariff to be lower than that
determined by the Regulatory Commission.
• Regulatory Commissions may undertake regulation including
determination of multi-year tariff principles, which rewards efficiency
and is based on commercial principles.
• Regulatory Commission to look at the costs of generation transmission
and distribution separately.

25. CENTRAL ELECTICITY AUTHORITY
• CEA will continue as the main technical Advisor of the Govt. of
India/ State Government with the responsibility of overall
planning.
• CEA will specify the technical standards for electrical plants and
electrical lines.
• CEA will act as technical adviser to CERC as well as SERCs.
• CEA is responsible to specify the safety standards.

26. ACTIONS AGAINST THEFT
• Focus on revenue realization rather than criminal
proceedings.
• Penalties linked to the connected load and quantum of
energy and financial gain involved in theft.
• Provisions for compounding of offences.
• Assessment of electricity charges for unauthorized use of
electricity by the assessing officer designated by the State
Government.
• Theft punishable with imprisonment.
• Punishment provision for abetment of theft.
• Special Courts.

27. OTHER MAJOR FEATURES
RESTRUCTURING OF SEBs:
• Provision for transfer scheme to create one or more companies
from SEB.
• Provision for continuance of SEBs
• States given flexibility to adopt reform model/path.
RURAL ELECTRIFICATION:
• Appropriate Government policies to endeavor to extend supply of
electricity to all villages/hamlets.
• No requirement of license if a person intends to generate and
distribute power in rural area.

28. ELECTRICITY AMENDMENT 2007
• Joint responsibility of State Government and Central
Government in rural electrification. The concerned State
Government and the Central Government shall jointly
endeavour to provide access to electricity to all areas
including villages and hamlets through rural electricity
infrastructure and electrification of households
• NO license will be issued for supply of captive power based
on previous provisions.
• The electricity supply code. It should be fixed and
transparent for all regions under one SEB.
• The tariff is to be made progressively that reflects the cost
of supply of electricity and also reduces cross-subsidies in
the manner specified by the Appropriate Commission
• Further clarification and changes made on electricity misuse
and theft.

29. TARIFF POLICY

30. Reasons for Formulation
• The Goal – 1,000 Units Per Capita
Consumption + 5% Spinning Reserve.
• State and Central Government Resources
Inadequate for Funding.
• Important to Attract Private Investments.
• Have to Provide Adequate Return on
Investment.

31. Objectives of the Policy
• Ensure Availability of Electricity to Consumers at
Reasonable and Competitive Rates.
• Ensure Financial Viability of Sector and Attract
Investments.
• Promote Transparency, Predictability and Consistency in
Regulatory Approaches.
• Promote Competition, Efficiency in Operations and
Improvement in Quality of Supply.

32. TARIFF PRINCIPLES
• Single Part Tariff and Two Part Tariff
1) It consists of both fixed and variable costs calculated
at a normative generation level.
2) Lower generation would lead to higher fixed costs and
vice versa.
3) This encouraged higher generation at all times (peak
and off-peak hours) which prevailed in times of acute
shortages.
4) The K.P. Rao Committee proposed linking the
incentive and disincentive with PLF plus deemed
generation which is in effect, Plant Availability.

33. Source: KP Rao Committee

34. Source: KP Rao Committee

35. Basic Guidelines
• Return on Investment
1) The Power Sector must provide Returns on
par with the other sectors to be able to
attract investment.
2) The Rate of Returns should be such that it
allows generation of reasonable surplus.

36. • Debt : Equity Ratio of 70:30 is maintained.
• Depreciation : CERC will specify the rates of
depreciation. Benefits of reduced tariff after the
assets have been fully depreciated will be passed
on to consumers.
• Cost of Debt can be restructured with a view to
reduce tariffs.
• Foreign Exchange Risk shall not be a pass
through. It has to be appropriately hedged.

37. • Multi Year Tariff - It is adopted for any tariffs
to be determined for a 3 to 5 year control
period.
• Clean Development Mechanism (CDM) – Tariff
Fixation of all Electricity Projects that result in
lower Green House Gas Emissions should take
into account the benefits got under CDM.

38. DUTY STRUCTURE
• Duties/Cess can potentially distort
competition if used on a non-uniform basis.
• Captive Power Plants pay a higher duty than
normal consumers drawing power from the
grid.
• This will hamper growth of small and medium
industries thus hampering economic growth.

39. GENERATION
• Two Part Tariff Structure is adopted for all long
term contracts.
• Availability Based Tariff (ABT) has been
adopted.
• PPA’s ensure payment security arrangements
for Generation Companies.
• In case of coal based power stations, cost of
project must include the coal washeries and
benefaction system.

40. CAPTIVE GENERATION
• Captive Plants can inject surplus power into
the grid which can be bought by distribution
licensees.
• Prices should be differentiated for peak and
off-peak supply.
• Alternatively, generators can inject into the
grid under the ABT mechanism.
• Non-Conventional Power can be purchased on
Preferential Tariff.

41. TRANSMISSION
• Implemented with a view to utilize all assets
across the country.
• The pricing is sensitive to distance, direction and
related to the quantum of power flow.
• Metering that would enable ToD tariffs
compatible with ABT requirements should be
implemented.
• Loss Framework must ensure that Loss
Compensation is reasonable and linked to
applicable to technical loss benchmarks.

42. DISTRIBUTION
• Implementation of Multi Year Tariff Network will
minimize risks, promote efficiency and bring
higher reliability on tariffs.
• Licensees have the freedom to charge tariffs
lower that that which is specified when
competitive conditions prevail.
• The SERC’s must introduce mechanisms of
sharing excess profits and losses with the
consumers as a part of the overall MYT
Framework.

43. Aspects in Determination of Tariff
• All Power Purchase costs need to be considered as
legitimate unless it is proved that merit order basis has
been violated.
• AT&C Loss reduction should be incentivized by linking
returns in an MYT framework to an achievable trajectory.
• Tariffs should be linked to different levels of AT&C Losses.
This can generate the political will to increase efficiency as
greater losses means lesser margins.
• Pass through /Past losses only allowed to the extent caused
by uncontrollable factors.
• Contingency Reserves must be drawn upon only with prior
approval of state reserve.

44. SUBSIDIES
• If Consumption is less than 30 units/month, the
cost of electricity supply shall be subsidized to an
extent of 50% of the cost.
• Tariff for agricultural use may be set according to
ground water levels in that area. This could
prevent excessive depletion of water resources.
• Use Prepaid meters to transfer subsidy instead of
free electricity.
• Use of self-closing load limiters may be
encouraged as an option to limit consumption.

45. TARIFF COMPONENTS
• Two Part Tariffs applicable to large consumers.
• PPA’s with generating companies may be suitably
assigned to successor distribution companies.
• Cross subsidy surcharge should not eliminate
competition.
• Wheeling charges should be determined by the
intra-state transmission utilities and will include
average loss compensation.
• In case of blackouts, standby generator
arrangements shall be provided by distribution
licensee.

46. THANK YOU
ANY QUERIES???