Regulatory Aspects of CERC By S C SHRIVASTAVA

Regulatory Aspects of CERC By S. C. SHRIVASTAVA, Joint Chief (Engg) CERC, New Delhi 3/18/2018 CERC 1

Tariff Regulation In India • Till 1998 – By Govt. • Since Aug. 1998 – By Central & State Regulatory Commissions under ERC Act 1998 • Since 2003 – By Central & State Regulatory Commissions under EA 2003 3/18/2018 CERC 2

Tariff Setting In India • Prior to 1992– Single part Tariff Cost plus on actuals (Schedule 6 of E(S) Act 1948) • Since 1992 to 2001– For SEBs- Single part Cost plus on actuals – For CPSUs & IPPs- Two part Cost Plus with performance based rate making (KP Rao Committee) 3/18/2018 CERC 3

Tariff Setting In India • Since 2001 to 2003– For SEBs- Single part Cost plus on actuals – For CPSUs & IPPs- Availability Based Tariff (ABT) Cost Plus with performance based rate making (CERC Regulation) • Since 2003 onward– Availability Based Tariff (ABT) Cost Plus with performance based rate making – Competitively Bid Tariff 3/18/2018 CERC 4

Objective- EA 2003 “An Act to consolidate the laws…for taking measures conducive to – development of electricity industry, – promoting competition therein, – protecting interests of consumers – supply of electricity to all areas 3/18/2018 CERC 5

Statutory Provisions in EA 2003 Section 3 & 4 Regulatory Commissions to be guided by the NEP and TP. Section 61 Regulatory Commissions to formulate “Terms and Conditions of Tariff” for determination of Tariff under Section 62 duly considering: – The factors which would encourage competition, efficiency, economical use of the resources, good performance and optimum investments; – The principles rewarding efficiency in performance; – The promotion of co-generation and generation of electricity from renewable sources of energy; 3/18/2018 CERC 6

Statutory Provisions in EA 2003 • Section 62: Provide for determination of Tariff for sale of power from a generating company to distribution licensees • Section 63: “Notwithstanding anything contained in section 62, the Appropriate Commission shall adopt the tariff if such tariff has been determined through transparent process of bidding in accordance with the guidelines issued by the Central Government” 3/18/2018 CERC 7

Provisions in Tariff Policy • All future requirement of power should be procured competitively by distribution licensees • Expansion of existing projects of State controlled/owned companies exempted • Expansion of generating capacity by private developers for this purpose restricted to one time addition of not more than 50% of the existing capacity. • New projects of State controlled/owned companies exempted for five years or more till the situation is found ripe to introduce such competition by the Regulatory Commissions. 3/18/2018 CERC 8

Provisions in Tariff Policy • Clarification issued by the Mo. P on 9. 12. 2010 on Clauses 5. 1 and 7. 1 exempting following types of PSUs/CPSUs projects from competitive bidding route: – Expansion projects of already Commission projects – Projects for which PPA has been sign on or before 5. 1. 2011 • No such relaxation for Pvt Sector 3/18/2018 CERC 9

Procurement Options for the Discoms • From State PSUs/ CPSUs at Cost plus tariff • Procurement through competitive bidding route under case-1 and Case-2 • Procure power from traders and discoms under bilateral arrangements though Open access • Procure Power at the power exchanges through collective transactions though Open access(Day ahead Market) • Procure Power though UI (Real time market up to grid frequency 49. 7 Hz) 3/18/2018 CERC 10

Regulatory Approach in Cost plus Tariff setting Cost of Service based on performance linked norms – Balancing the interest of Generators on one hand & beneficiaries on the other – Transparency – Light handed regulation – Encourage efficiency & Economy – Encourage Investment – System of incentive and disincentive for performance 3/18/2018 CERC 11

Availability Based Tariff – Annual Fixed Charge (Capacity Charges)- Payment Linked to availability – Energy Charge- Payment linked to scheduled generation – Unscheduled Interchange (UI) Charge- payment linked to grid frequency for deviation from the schedule – Incentive- For Ex-bus generation in excess of ex-bus generation corresponding to the availability Norm 3/18/2018 CERC 12

CERC’s Terms and Condition of tariff for 2009 -14 • Provided for Pre-Tax Return on Equity • Tightened efficiency norms for thermal power stations – For existing 500 MW units Station heat rate norm reduced from 2450 k. Cal/k. Wh to 2425 k. Cal/k. WH – For New units operating margin in Station heat rate norm reduced from 9% to 6. 5% from the design heat rate values • Raised performance norms of availability from 80% to 85% coupled with incentive linked to availability • Reduced aux energy consumption norm by 0. 5% point for thermal generating stations. • Provide for efficiency & performance norms for super critical technology units • Provide for sharing of benefit of savings in secondary fuel oil consumption 3/18/2018 CERC 13

CERC’s Terms and Condition of tariff for 2009 -14 Renovation & Modernization of Thermal power Plants • Distinct activity recognized in Tariff Policy • Aimed at improved efficiency and performance • Suggesting Phasing out of very old and inefficient units • Special allowance after useful life for sustaining efficiency and performance parameters in well maintained stations Rs. 5 lakh. MW/Year with effect from 2009 -10 escalated every year at 5. 72%. 3/18/2018 CERC 14 14

ABT-Thermal 3/18/2018 CERC 15

Rationalisation of Performance/Operational Norms • Reasonable and achievable • Commensurate with technology, unit size, fuel used and operating conditions • With due regard to industries performance • Wherever scope for improvement a reasonable time to be allowed 3/18/2018 CERC 16

Regulatory Scope Under Competitive bidding Route • Scope is limited • Approval of quantum of capacity/Energy to be purchased and approval of fuel price in case of fuel specific enquiry • Approval of Deviations from the guidelines • Notification of escalation indices for evaluation and for payment purposes • Scrutiny of the process to see whether it conforms to the competitive bidding guidelines • Approval of the tariff implications arising out of change of law 3/18/2018 CERC 17

Escalation indices for Evaluation 3/18/2018 CERC 18

Escalation indices for payment 3/18/2018 CERC 19

Transmission Charges and Losses Matrix 3/18/2018 CERC 20

CERC Regulated Tariffs 3/18/2018 CERC 21

CERC Regulated Tariffs 3/18/2018 CERC 22

Competitive Bid Tariffs 3/18/2018 CERC 23

Competitive Bid Tariffs 3/18/2018 CERC 24

Price of Electricity in Bilaterals/PXs/UI 3/18/2018 CERC 25

Price of Electricity in Bilaterals/PXs/UI • Presently the prices in the PXs are going as high as Rs. 14 in the southern Region The reasons? • Desperate buying by Tamil Nadu due to – Increase in Peak Demand by about 10% – No capacity addition – Unable to over draw from the grid as UI – Transmission congestion leading to increase in prices by Rs. 3 due to congestion charges 3/18/2018 CERC 26

Success of Competitive Bidding • Conducive Environment • Uniform bidding guidelines • Standard bid documents and PPA • Equitable sharing of risk between procurer and generator • Reasonable penalty and risk mitigation • Regulatory certainty • State support in getting environment clearances land, fuel, water, and • Success of bidding process demonstrated in 3 UMPP Sasan, Mudra and Krishnapatanam 3/18/2018 CERC 27

Challenges • Extent of State support in future • Manner of tackling situations arising out of Change of law • Abnormal fuel price escalations • Development of transmission corridors • To early to say that price discovery is competitive enough to beat the cost plus prices • There is need for advance action by the States to start the procurement process with regard to their demand projections. 3/18/2018 CERC 28

Thank You E-mail: scschandra@hotmail. com CERC Web Site: 3/18/2018 CERC www. cercind. gov. in 29