Proposed Amendments to Tariff Policy Under Electricity Act 2003
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Proposed Amendments to Tariff Policy Under Electricity Act 2003
The existing tariff policy has
recently been reviewed by the expert committee and the following necessary
amendments have been proposed in the Tariff Policy under section 3 of
Electricity Act 2003. Following are the proposed
amendments to the act which might give us a food for thought regarding the
existing tariff policy. For your Reference you may download the existing policy
and Amendment from the links below.
Download pdf file: Tariff Policy,
Amendment
to Tariff Policy
Amendment: 8.3(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.
Justification: The review of the above clause was considered by the
Working Group and observed that no modification of the clause is required and
hence, the same provision can be continued further and therefore the phrase
"This- provision will be re-examined after five years" is now
required to be deleted.
Amendment: 8.5.1- National Electricity
Policy lays down..........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
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.
Accordingly,
an alternative formulation for calculating cross subsidy surcharge could be
worked out to ensure that neither open access is throttled nor does the host
DISCOM unduly suffer.
SERCs may
calculate Cross-Subsidy Surcharge based on the assumptions that the power
available as a result of exit of open access consumer will be sold at the
average revenue realization rate. This appears to be the most practical
scenario in a situation of shortage of power supply. The SERCs may assume certain
percentage (say 10%) of the total consumption by eligible open access consumers
for the purpose of estimation of power available for sale at average
realization rate. The wheeling . charge (grossed up by the system loss at
appropriate level) to be recovered from the open access consumers should also
be factored into computation of surcharge. At the same time it should also be
ensured that the formula incentivizes the distribution licensees to reduce
their distribution losses.
For a
situation where there is no power cut, SERCs may calculate Cross-Subsidy
Surcharge based on the estimation that the DISCOM will avoid purchase of the
quantum of power for which open access has been sought. This principle of
avoided cost method should be adopted in areas where there are no power
shortages. Other assumptions relating to quantum of power avoided and the
wheeling charges could be on the same lines as above.
Justification: An opinion was-expressed for
review of the formula given in the Tariff Policy which uses the weighted
average cost of power purchase of top 5 % as a factor and leads to a negative
cross subsidy surcharge in certain cases. Allowing consumers to migrate to open
access under these conditions increases the burden of the DISCOM and this was
not in line with the spirit of the cross - subsidy surcharge as per the Tariff
Policy. There is thus a need to re-determine the formula for calculating cross
subsidy surcharge. The options suggested were based on the average cost or
bottom 5% costs.
Section 61
(g) of the Electricity Act, 2003 provides that appropriate Commission shall
determine tariff keeping in view the factor that the tariff progressively
reflects the cost of supply of electricity and also, reduces cross-subsidies in
the manner specified by the Appropriate Commission. However, very few SERCs
have specified the roadmap of reduction of cross subsidies. Therefore, roadmap
of reduction of cross subsidies should be specified by SERCs in line with the
spirit of the Act.
Amendment: 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 tariff for temporary
connection to that consumer category as specified by the Appropriate Commission.
charges may be decided by mutual agreement between the open access consumers
and the distribution companies.
Justification: The issue of Universal Service
Obligation (USO) and standby charges was taken up by the Task Force on
Operationalisation of Open Access in the Planning Commission with the M/o Law
& Justice.
After
consultation with M/o Law & Justice/Ld. Attorney General of India Ministry
of Power had issued clarification vide letter dated 30.11.2011 that "all 1MW and above consumers are deemed
to be open access consumers and that the regulator has no jurisdiction over
fixing the energy charges for them". All concerned have
been requested to take necessary. steps for implementing the provisions
relating to open access in the Electricity Act, 2003 in light of the said
opinion.
Amendment: Para 8.4: 1(iii) 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. Short term procurement through Purchase of
Renewable Energy Certificates (REC) or at preferential tariffs.
Justification: In order to bring more
competition to the Renewable Energy sector with consequent reduction in prices
of power production through the renewable sources of energy, the following
options were deliberated:
- Long term procurement of power by the distribution licensee to be done only through competitive bidding process (CBP) .and Power Purchase Agreements (PPA).
- REC Mechanism has already been launched by CERC which along with the preferential tariffs takes care of the short, term procurement by the distribution licensees.
In the absence of competitive bidding for long term procurement
from renewable energy sources there will be no competition in the sector and
consumer will be deprived of the competitive rates for renewable energy.
Amendment: Para 6.4: Pursuant to provisions
of section 86(1 )(e) of the Act, the Appropriate Commission shall fix a minimum
percentage of the.....obligations. In view of the comparatively higher cost of
electricity from solar energy currently, the REC mechanism should also have a
solar specific REC. (iii) 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. Long term
trajectory for RPO for the development of renewable energy to be prescribed by
the Appropriate Commission.
Justification: Renewable Purchase Obligation
(RPO) is fundamental to the growth of renewable energy as without this
commitment, given higher cost of renewable energy, the States may not be
willing to purchase such power. In order to meet the targets set up under the
National Action Plan on Climate Change (NAPCC) the States should strive to make
mandatory RPO equivalent to the minimum as per the NAPCC targets.
Stable RPO
regime is a pre- requisite for promotion of renewable energy sources. The long
term trajectory for Renewable Purchase Obligation would give greater visibility
for the market players to plan their investment in the Renewable Energy Sector.
It is
desirable that States should formulate long term trajectory for RPO for the
development of renewable energy sector.
Amendment: Para 7.1 (6): However, in the
following cases the exemptions from competitive bidding route may be adopted:
- 1200 kV EHVAC and HVDC systems upto 13th Plan i.e. year 2021-22, after which it shall be reviewed for introduction of competitive bidding.
- Works required to be done by CTU/STUs to cater to an urgent situation or, which are required in a compressed time schedule by CTU/STUs or, which are of National importance/backbone of National Grid, as decided by Central Government on case to case basis.
- The intra-state transmission projects by STUs will be exempted from competitive bidding route for further 2 years beyond 6.1.2011.
- Transmission scheme with estimated project cost less than Rs. 200 crores. This limit could be reviewed by the Ministry of Power from time to time.
Justification: There is a difference between the
technology for 1200 kV EHVAC lines and sub-stations and HVDC stations and
bipole. This involves different sets of equipments. Therefore as recommended by
Empowered Committee it would be desirable to seek exemption from 1200 kV EHVAC
system separately.
CEA is of
the view that considering the technical complexity involved in the HVDC
converter stations and the importance of control of flow of power in the HVDC
converter stations in the national grid CEA is of the view that it should be
exempted from tariff based competitive bidding route. HVDC bipole lines
alongwith the converter stations form a complete system as a whole, and hence
should not be seen in isolation, so both the bipole as well as convertor
stations may be exempted from the realm of competitive bidding.
In its
30th meeting held on 31.10:2012 the Empowered Committee had recommended
that projects costing less than Rs. 200 crores may be implemented through
regulated tariff mechanism as small schemes are not amenable to tariff based
competitive bidding as reputed parties may not be interested due to high
overheads and the need for setting up independent O&M for 35 years.
Amendment: Clause 5.1 (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 graded
reduction in % of allowable merchant sales be limited to delays attributable to
the developer. 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-of-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 through a
mechanism prescribed by the Central Government.
The graded
reduction in % of allowable merchant sales may not be completely dispensed with
since the provision of merchant power has been extended as an incentive for
timely completion of projects. However, it is also felt that the provision to
reduce the permitted percentage of merchant sale for delays in commissioning of
the project, the total delay may be limited to the delay which is attributable
to the Developer.
Justification: It has been observed over time
that hydro projects are prone to time and cost over runs due the reasons which
are beyond the control of the developers. Over the past few years IPPs have
been raising the issue of reduction in maximum permissible limit of Merchant
Sale in Hydro Projects (i.e. 40%) on account of delay in Project construction
beyond six months @ 5% for delay of every six months in commissioning of the
last unit of the project. The IPPs have assigned various reasons for delay in
commissioning the units including inter-alia geological surprises, R&R
issues, law & order problems etc. They have represented that they ought not
to be penalized for reasons which are beyond their control. During the 5th
meeting of the Hydro Task Force some State Govts have raised the aforesaid
issue of reduction in maximum permissible limit of merchant sale on account of
delay in commissioning of projects.
The Division
had suggested that notwithstanding the inherent uncertainties in completion of
hydro projects as mentioned above, the graded reduction in % of allowable
merchant sales may not be completely dispensed with since the provision of
merchant power had been extended as an incentive for timely completion of
projects. However, it is also felt that reduction in % of allowed merchant sale
may be limited to the delay attributable to the Developer.
The graded
reduction in % of allowable merchant sales may not be completely dispensed with
since the provision of merchant power has been extended as an incentive for
timely completion of projects. However, it is also felt that the provision to
reduce the permitted percentage of merchant sale for delays in commissioning of
the project, the total delay may be limited to the delay which is attributable
to the Developer. Author Profile
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