3. CHITALE & CHITALE PARTNERS
Transmission and Distribution of Power in India
This presentation covers an overview of the law and policies of the
Government of India for transmission and distribution of power,
comprised in :
The Electricity Act, 2003
The National Tariff Policy, 2006
Guidelines on Tariff Determination by Competitive Bidding
Foreign Direct Investment Policy
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4. CHITALE & CHITALE PARTNERS
Policy Directives Applicable
The Electricity Act, 2003
The Electricity Act, 2003 (“Electricity Act”) lays down the law
relating to generation, transmission, distribution, trading and use
of electricity. It provides for liberal and progressive framework for
power sector development and facilitation of investment by
creating competitive environment, and reforming the distribution
segment of power industry. The Electricity Act has several
enabling provisions, with a view to promote accelerated
development of the power sector.
The Electricity Act:
Removes / reduces entry barriers
Mandates open access in transmission
Permits multiple licensees in distribution
Constitutes Central and State Regulatory Commissions - to
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develop market (including trading)
5. CHITALE & CHITALE PARTNERS
Policy Directives Applicable
• Central government to prepare National Electricity Policy and Tariff
Policy. (Section 3-6)
• Generation is delicensed. Captive generation is freely permitted.
Hydro projects need approval of State Government and central
Electricity Authority (CEA) (Section 7-11)
• The Central Electricity Regulatory Commission (“CERC”) / State
Electricity Regulatory Commissions (“SERC”) are the licensing
authorities for transmission, distribution and trading of electricity.
The CERC / SERC have the power to grant, revoke, amend or
suspend the licence granted. (Sections 12- 24)
• The CERC / SERC may specify any general or specific conditions
under the licence. (Section 16)
• Central Transmission Utilities (CTUs) / State Transmission Utilities
(STUs) as well as Government companies are deemed to be the
transmission licensees. (Section 14).
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6. CHITALE & CHITALE PARTNERS
The Electricity Act, 2003 on Transmission and Distribution
Transmission
There would be Transmission Utilities at the Centre and in the States to undertake
planning and development of transmission system. (Sections 38, 39)
Load despatch to be in the hands of a government company / organization.
Flexibility regarding keeping Transmission Utility and Load Despatch Centre
together or separating them. Load Despatch function is critical for grid stability and
neutrality as compared to generation and distribution. (Sections 26, 27, 28, 31, 32)
Transmission companies to be licensed by the Appropriate Commission after
giving due consideration to the views of the Transmission Utility. (Section 15(5)
(b))
The National Load Despacth Centre (NLDC) and Regional Load Dispatch Centres
(RLDCs) / Transmission Utilities / Transmission Licensees do not trade in power.
The RLDCs ensure integrated operation of the power system and optimum
scheduling and despatch of electricity. (Sections 26, 27, 31, 32, 38, 39, 41)
Non-discriminatory open access to the transmission system to be provided to the
distribution licensees, generating companies. Provision for progressive reduction
of surcharge and cross subsidies. (Sections 38-40)
This would generate competitive pressures and lead to gradual cost reduction.
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7. CHITALE & CHITALE PARTNERS
The Electricity Act, 2003 on Transmission and Distribution contd..
Distribution
Distribution to be licensed by SERCs. Distribution Licensees are also
free to take up generation. Also generating companies are free to take
up distribution. This would facilitate private sector participation.
(Sections 12-14)
Retail tariff is to be determined by the CERC / SERC. (Section 62)
Metering is mandatory. (Section 55)
CERC / SERC have been given powers to suspend/revoke licence of
the distribution/transmission companies. (Sections 19, 24)
Open access in distribution to be allowed by SERC in phases.
(Section 42)
In addition to the wheeling charges, provision for surcharge if open
access is allowed before elimination of cross subsidies, to take care of
current level of cross subsidy. Licensee’s obligation to supply.
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(Section 42).
Provision relating to safety and standards of performance
(Section 53-57)
8. CHITALE & CHITALE PARTNERS
Tariff determination by competitive bidding
Guidelines for Determination of Tariff by Bidding Process for
Procurement of Power by Distribution Licensees (often referred to as
the Procurers) have been framed by the Central Government and the
same are to be adopted by CERC / SERC as provided by Section 63
of the Electricity Act. The specific objectives of these guidelines are
as follows:
Promote competitive procurement of electricity by distribution
licensees
Facilitate transparency and fairness in procurement processes;
Facilitate reduction of information asymmetries for various bidders;
Protect consumer interests by facilitating competitive conditions in
procurement of electricity;
Enhance standardization and reduce ambiguity and hence time for
materialization of projects;
Provide flexibility to suppliers on internal operations while ensuring
certainty on availability of power and tariffs for buyers.
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9. CHITALE & CHITALE PARTNERS
The National Tariff Policy, 2006
Transmission:
Implementation of suitable transmission tariff framework for all inter-
State transmission, including transmission of electricity across the
territory of an intervening State as well as conveyance within the
State which is incidental to such inter-state transmission.
National tariff framework implemented should be sensitive to
distance, direction and related to quantum of power flow. This would
be developed by CERC taking into consideration the advice of the
Central Electricity Authority (CEA).
Transmission charges in proportion to the respective utilization of the
transmission system.
Prior agreement with the beneficiaries would not be a pre-condition
for network expansion.
Transactions should be charged on the basis of average losses
arrived at after appropriately considering the distance and directional
sensitivity, as applicable to relevant voltage level, on the
transmission system.
Financial incentives and disincentives should be implemented for the
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CTUs and the STUs around the key performance indicators (KPI) for
these organizations.
10. CHITALE & CHITALE PARTNERS
The National Tariff Policy, 2006 contd…
Distribution:
Implementation of Multi-Year Tariff (MYT) framework to minimize risks for utilities
and consumers, promote efficiency and appropriate reduction of system losses
and attract investments.
Introduction of mechanisms for sharing of excess profits and losses with the
consumers as part of the overall MYT framework.
Incumbent licensees should have the option of filing for separate revenue
requirements and tariffs for an area where the State Commission has issued
multiple distribution licences, pursuant to the provisions of Section 14 of the Act
read with the Policy.
CERC / SERCs should initiate tariff determination and regulatory scrutiny on a
suo moto basis in case the licensee does not initiate filings in time.
The Policy also lays down methodology for tariff determination.
The Policy lays down that the amount of cross-subsidy surcharge and the
additional surcharge to be levied from consumers who are permitted open access
should not be so onerous that it eliminates competition which is intended to be
fostered in generation and supply of power directly to the consumers through
open access.
The Electricity Act provides that the Appropriate Commission may fix the trading
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margin, if considered necessary. Though there is a need to promote trading in
electricity for making the markets competitive, the Appropriate Commission
should monitor the trading transactions continuously and ensure that the
electricity traders do not indulge in profiteering in situation of power shortages.
Fixing of trading margin should be resorted to for achieving this objective.
11. CHITALE & CHITALE PARTNERS
Foreign Direct Investment Policy
In accordance with the Consolidated FDI Policy
(effective from October 1, 2010), 100% FDI is
allowed under the automatic route.
For transmission of electric energy produced in
hydro-electric, coal/lignite based thermal, oil
based thermal and gas based thermal power
plants. Also, the same is applicable for
distribution of electric energy to households,
industrial, commercial and other users.
However FDI is not allowed when electricity is
produced in atomic power plant / atomic energy
since private investment in this sector/activity is
prohibited and is reserved for public sector.
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