by

Sri P. Rama Mohan, M.E.

Member

Andhra Pradesh Electricity Regulatory Commission

09-11-2016 1

Progress towards Reforms

Indian Power Sector Time line

Post – Reforms Scenario in

- System Planning

- Generation

- Transmission

09-11-20162

Post – Reforms Scenario in

- Grid Operation

- Distribution

- Retail Supply

Independent Pricing

09-11-20163

Retail Supply Tariff determination

process

AP Retail Supply Tariffs for

FY 2015-16 and FY 2016-17

Highlights

Q & A

09-11-20164

The decade of 80s witnessed accelerated

reforms and restructuring of the sector in UK

and the USA

Taking lead from the UK and the USA model,

developing countries like Argentina, Chile,

Brazil and Philippines also initiated the

reform process.

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In 1991, India also adopted the path to

reforms.

Indian Electricity Act, 1910 and Electricity

Supply Act, 1948 were amended to create a

new legal, administrative & financial

environment.

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Initial focus was confined to Generation.

The reform models adopted in the developed

countries were oriented towards introducing

competition and developing a market

mechanism for trading in power.

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In India, the initial reform model was

designed for functional unbundling of the

vertically integrated utilities.

Beginning with Odisha, Haryana and Andhra

Pradesh, reforms have been carried out in

many States. Odisha & Delhi have privatized

distribution business. Implementation was 1st

carried out in AP only.

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Motivated by the success of power sector

restructuring in UK, Chile & Argentina, the

World Bank initiated power sector reforms in

India.

Two main components of power sector

restructuring at the State level are:

- Unbundling of SEBs.

- Setting up of Regulatory Commissions.

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1991 – Opening up of Power Sector for IPPs

(Private Power Policy & Mega Power Policy)

Unbundling & Privatization of Odisha SEB;

followed by unbundling & regulatory reforms

in Haryana & AP

1998 – Electricity Reform Act; setting up of

CERC & SERCs

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2001 – Electricity Bill introduced

2001 –Ahluwalia Committee report on SEB

dues

2002 – Privatization of DVB (Delhi)

2003 – Electricity Act, 2003

2005 – National Electricity Policy

2006 – National Tariff Policy

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Electricity Act, 2003 was enacted on

10th June 2003.

Main Provisions:

Govt. of India to prepare National Electricity

Policy (NEP) and National Tariff Policy (NTP)

in consultation with the State Governments

and Central Electricity Authority.

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Electricity Act, 2003 - Main

Provisions:

NEP and NTP are intended for

development of Power System based on

optimal utilization of resources such as

coal, natural gas, nuclear fuel, hydro and

renewable sources of energy.

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Electricity Act, 2003 - Main Provisions:

Promotion of Co-generation and generation

from renewable sources included as

function of State Commissions under

Section 86 (e).

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Electricity Act, 2003 - Main Provisions:

Section 86 (e): ‘Promote Co-generation

generation of electricity from renewable

Sources of Energy by providing suitable

connectivity with the grid and sale of

electricity to any person, and also specify, for

purchase of electricity from such sources a

percentage of the total consumption of

electricity in the area of a distribution

licensee'

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Electricity Act, 2003 - Main Provisions:

Generation de-licensed and Captive generation

freely permitted.

Non-discriminatory immediate Open Access in

Transmission & in phased manner in

Distribution.

Trading recognized as a distinct activity.

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Electricity Act, 2003 - Main Provisions:

Provision for payment of subsidy through

budget and gradual elimination of cross

subsidy.

Setting up of an Appellate Tribunal to hear

appeals against the decisions of the CERC and

SERCs.

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09-11-201618

C

IPPs

G

C C

Competitive Market

Segments Regulated

Market

T & B S

D & R S

IPP – INDEPENDENT

POWER

PRODUCER

G - GENERATOR

T – TRANSMISSION

B S – BULK SUPPLY

D – DISTRIBUTION

RS – RETAIL SUPPLY

C – CONSUMER

Post Reforms in Electricity Sector on the following sectors

System Planning

Generation

Transmission

Grid Operation

Distribution

Retail Supply

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The Central and State Transmission

Utilities are given the responsibility

for Load Forecast and Resource

Planning etc. and the same shall be

approved by the appropriate

Commission.

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Role of Govt. in shaping the system

expansion is almost limited except by

providing directions under Section 108

of Electricity Act, 2003.

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Section 108 (1)….

‘In discharge of its functions the State

Commission shall be guided by such

directions in matter of policy involving

public interest as the State Government

may give to it in writing.’

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Section 108 (2):

‘If a question arises as to whether such

direction relates to a matter of policy

involving public interest, the decision

of State Government thereon shall be

final’

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Appropriate Commission to specify

(by a regulation) the terms and

conditions for determination of

tariff.

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Section 62:

‘The Appropriate Commission shall

determine the tariff in accordance

with the provisions of this Act for..

(a) Supply of Electricity by a

Generating Company to a

distribution licensee’

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Section 63:

‘Notwithstanding any thing contained in

Section 62, the Appropriate Commission

shall adopt the tariff if such tariff has been

determined through transparent process

of competitive bidding in accordance with

the guidelines issued by the Central

Government.’09-11-2016

26

Licensees are obligated to accept and

adopt the guidelines issued by GoI.

Intervention of Commission comes into

picture with regard to change in rules

from GoI.

Neither GoI nor GoAP can in no way

interfere in the Generation Tariff

determination.

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Section 62:

‘The Appropriate Commission shall

determine the tariff in accordance

with the provisions of this Act for..

(b) Transmission of Electricity’.

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Transmission System Planning is

approved by appropriate Commissions.

Inter-State Transmission charges and

losses are fixed by CERC.

Intra-State Transmission Charges and

Losses are fixed by State Commissions.

09-11-201629

NLDC and SLDCs are the apex bodies at

Central and State level.

Section 32 (3) of EA,2003:

‘The State Load Despatch Centre may levy

and collect such fee and charges from the

generating companies and licensees engaged

in intra-State transmission of electricity as

may be specified by the State Commission.’

09-11-2016 30

Appropriate charges as determined

by CERC/SERC are to be paid by

users.

The agencies collect charges on

cost recovery basis.

Govt. has no role in fixing the prices

/ Charges

09-11-2016 31

Section 62:

‘The Appropriate Commission shall

determine the tariff in accordance

with the provisions of this Act for…

(c) wheeling of electricity’

09-11-2016 32

Open Access to Distribution network

is provided by the State Commission

subject to payment of Charges.

Under Open Access consumer can

procure electricity easily form chosen

Supplier.

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The Charges for Wheeling and

Open Access are determined

by Commission, following due

process.

09-11-201634

Procuring Electricity and Selling to

Consumers at the tariff determined by

State Commission.

At present the distribution licensees are

also performing the Retail Supply

business.

09-11-201635

Section 65 of EA,2003:

‘If the State Government requires the

grant of any subsidy to any consumer or

class of consumers in the tariff

determined by the State Commission

under section 62, the State

Government shall, notwithstanding any

direction..

09-11-201636

Section 65 of EA…

which may be given under section 108, pay,

in advance and in such manner as may be

specified, the amount to compensate the

person affected by the grant of subsidy in the

manner the State Commission may direct,..

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Section 65 of EA…

as a condition for the licensee or any other

person concerned to implement the subsidy

provided for by the State Government..

09-11-201638

Section 65 of EA…

Provided that no such direction of the

State Government shall be operative if the

payment is not made in accordance with the

provisions contained in this section and the

tariff fixed by State Commission shall be

applicable from the date of issue of

orders by the Commission in this regard.

09-11-2016 39

Govt. can issue policy directions to Regulatory

Commission – the only way of Govt.

intervention.

The direction is subject to final interpretation

by the Govt. when the dispute arises.

Policy directions under this Section are

expected to be non-tariff related.

09-11-201640

Govt. can intervene in pricing mechanism

only under Section 65 of Electricity Act. The

intervention can be only to reduce the prices

fixed by the Commission, not otherwise.

If there is any reduction in tariff on account of

Govt. directions, it should reimburse the

revenue lost as specified by the Commission.

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However, the DISCOMs are still owned by

the Govt. while holding majority of the

shares.

Such higher holding normally leads to

indirect control in licensees pricing

proposals.

09-11-201642

As on date Govt. cannot influence the

pricing of Electricity except by providing

compensation under Section 65.

Some Policies may be considered as

directions under Section 108 of EA,2003

which if any financial impact is involved, it is

treated as direction under Section 65 of EA

for the purpose of Compensation.

09-11-201643

Entry barriers in generation and retail

supply have been removed and prices are

allowed to be market determined under

open access which are expected to be

efficient and economic.

09-11-201644

The ARR (Aggregate Revenue

Requirement, Cost for one year) on

estimate Sales is evaluated and approved

by Commission.

Factors considered for ARR evaluation

Transmission Cost..

09-11-201645

Factors considered for ARR evaluation

SLDC Cost

Distribution Cost

PGCIL Cost

ULDC Cost

Power Purchase Cost

Interest on Consumer Security Deposits

Supply Margin in Retail Supply Business

Other Costs, if any.

09-11-201646

Accordingly the cost per unit of electricity

for different consumer categories is

computed.

09-11-201647

A full cost recovery tariff schedule is

worked out based on unit cost and

expected revenue from sale of energy

while keeping in view the following;

a) Reduction in Cross subsidy

b) Cost reflection of tariffs.

09-11-201648

The government is free to reduce such full

cost tariff for any consumer category by

providing subsidies under Section 65 of

Electricity Act,2003.

09-11-2016 49

ITEMAPEPDCL(Rs. Crs)

APSPDCL(Rs. Crs)

TOTAL(Rs. Crs)

ARR Approved

9114.90 17535.08 26649.98

Receivablefrom Tariff

8978.97 14381.60 23360.55

Receivable from Subsidy

135.94 3153.48 3289.42

RevenueSurplus / Deficit

0 0 0

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For FY2016-17, APERC has determined

the full cost recovery tariff for LT

Agriculture in the following manner:

09-11-201651

Category

Sales Volume(MU)

Cost Recovery(Rs. Crs.)

Subsidy by Govt.(Rs. Crs.)

EPDCL SPDCL EPDCL SPDCL EPDCL SPDCL

LTAgricu-lture

2281.16 8392.70 41.68 82.72 135.94 3153.48

09-11-2016 52

AP Retail Supply Tariffs 2015-16 and 2016-17:

Highlights

09-11-201653

Charges/rates kept unchanged for all

domestic consumers (1.25 crs) up to 200

units per month.

Out of the total domestic consumers of 1.25

crs, about 1.18 crs consumers consume less

than 200 units per month and thus were

completely exempted from the Tariff hike.

09-11-2016 54

For the balance 6.62 lakhs domestic

consumers consuming more than 200 units

per month, the tariff hike was restricted to 5%

as against 6% proposed by the licensees.

14.93 lakhs Agricultural consumers and 0.36

lakhs of Cottages Industries & Religious

places (up to 2KW connected load) were

exempted from the Tariff hikes.

09-11-201655

9.51 lakhs consumers belonging to low

income generating segments of the economy

i.e. small traders/establishments and sub-

categories of LT-III: Industry such as

pisciculture/prawn culture, sugar cane

crushing and poultry farms were exempted

from hike in energy charges.

09-11-2016 56

A new category under LT named “NTR Sujala

Padhkam’ was introduced.

For all other consumers, the hike in energy

charges was restricted to 5% as against 6%

proposed by the licensees.

Out of the total electricity consumers of

about 1.55 crs in the State, about 1.27 crs of

the consumers were spared from the burden

of Tariff hikes.

09-11-201657

There is no general increase in tariff for

domestic consumers. The average

consumption limits of two categories of

domestic consumers have been liberally

expanded. At five levels, the next stage of

tariff was fixed at 100 units as against 50

units.

09-11-201658

The limits for LT-I domestic grouping

have been revised upwards by 300

Units/Year for tariff classification.

- 21.58 Lack consumers benefited by

way of not moving into higher tariff

categories.

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96.6% consumers are either benefited or

untouched.

The following categories of consumer

have been exempted from hike in energy

charges.

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Categories exempted from hike:

LT-I : Domestic.

LT-II: Non-domestic / Commercial up to 100

units/month to help rural artisans and

traditional occupations.

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Categories exempted from hike:

LT-IV : Cottage Industries and Agro based

Industries

LT-V: Agriculture

LT-VI: NTR Sujala Padhakam

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Categories exempted from hike:

LT-VII (B): Religious Places (with Contract

load ≤ 2 kW)

ToD tariff for HT Consumer categories

Railway Traction.

09-11-201663

Tariff has been reduced from the existing

levels for the following consumer

categories:

Sugar Cane Crushing Units

HT-IV: Lift Irrigation

09-11-201664

New Consumer categories have been

added through restructuring/expansion

of the existing categories with reduction

in Tariff….

09-11-2016 65

New Consumer Categories:

a) Aquaculture and Animal Husbandry

(Pisciculture / Prawn Culture, Poultry

Units, Dairy farms)

b) Poultry hatcheries and poultry feed

mixing plants.

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New Consumer Categories:

c) Religious Places.

d) Energy Intensive Industries

09-11-2016 67

Three proposals of licensees were not

accepted, thus not adding any burden on

the consumers.

a) Increase in Billing Demand for HT

Consumer from 80% of CMD to 90%

of CMD

09-11-201668

Proposals not accepted…

b) Revision of security deposit from two

months to 75 days equivalent

consumption.

c) Reliability charge of 25 paise per

unit for uninterrupted supply in six

places.

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External subsidy requirement is placed at

Rs. 3289 Cr. (only for Agriculture) against

Rs. 4364 Cr. (total) by licensees; reduction

of Rs. 1075 Cr.

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Q & A

09-11-201671

THANK YOU

09-11-2016 72