The document discusses the deregulation of the electricity supply industry, highlighting the transition from a monopolistic system to one that includes various market players such as generator, transmission, and distribution companies. It details the evolution of deregulation in developed and developing countries, including the USA's Public Utilities Regulatory Policy Act and the EU's directive on the internal electricity market, which aimed to promote competition and reduce electricity prices. Additionally, it outlines the current state of electricity regulation in India, emphasizing the adoption of the Electricity Act 2003 to facilitate private investment and improve the efficiency of the power sector.

1. Deregulation of the electricity
supply industry
Guided by
Dr. Banikanta Talukdar
Associate Professor
Electrical & Instrumentation Engineering
Assam Engineering College
Presented by
Pulakesh K Kalita EE/16/02
Bhaskar Jyoti Gogoi EE/16/04

2. What is Deregulation?
• Deregulation is about removing control over the prices with introduction
of market players in the sector.
• The word ‘deregulation’ may sound a misnomer. ‘Deregulation’ does not
mean that the rules won’t exist. The rules will still be there, however, a
new framework would be created to operate the power industry.
• Word ‘deregulation’ finds its substitutes like ‘re-regulation’, ‘reforms’,
‘restructuring’, etc. The commonly used word in Europe is ‘liberalization’
of power industry;

3. Entities in deregulated electricity markets
1. Generator companies (GENCOS)-
• Generators produce and sell electricity.
• May refer either to individual generating units or to independent power producers
(IPP).
• IPP is a group of generating units within a single company ownership structure with
sole objective of producing power.
2. Transmission companies (TRANSCOS)-
• Companies which own and operate the transmission wires.
• Their prime responsibility is to transport the electricity from the generators to the
customer.
• They also make available the transmission wires to all entities in the system.
• They levy a transmission tariff for their services.
3. Distribution companies (DISCOS)-
• Entities owning and operating the local distribution network in an area.
• They buy wholesale electricity either through the spot-markets or through direct
contracts with gencos and supply electricity to end-use customers.

4. 4. Customers-
• Entity consuming electricity.
• They can buy electricity from the spot-market by bidding for purchase, or directly
from gencos or even from the local distribution company.
5. Independent system operator (ISO)-
• Entity which ensures the reliability and security of the entire system.
• An independent authority and does not participate in the electricity market trades.
• Usually does not own generating resources, except for some reserve in certain
cases.
• It procures various services such as supply of emergency reserves, or reactive
power from other entities in the system.
6. Market operator-
• Entity responsible for the operation of the electricity market trading.
• Receives bid offers from market participants and determine the market price based
on certain criteria in accordance with the market structure.
• Different trading schemes are hourly trading for the next day or trading for weeks,
months or years etc.

5. Figure1-Structure of the Deregulated Electric Supply System

6. Evolution of the concept of deregulation
1. Performance of monopoly utilities-
• In privately owned utilities, the costs incurred by the utility were directly
imposed upon the consumers.
• In government linked public utilities, factors other than the economics, for
example, treatment of all public utilities at par, overstaffing, etc. resulted
in a sluggish performance of these utilities.
2. Change in power generation technology-
• In the earlier days, cost-effective power generation was possible only with
the help of mammoth thermal (coal/nuclear) plants.
• However, during the mid eighties, the gas turbines started generating cost
effective power with smaller plant size.
• It was then possible to build the power plants near the load centers and
also, an opportunity was created for private players to generate power and
sell the same to the existing utility.

7. 3. The condition under which power systems were regulated,
did not exist any more.
4. Introducing competition at various levels of power industry-
• Electricity price will go down.
• Choice for customers.
• Customer-centric service.
• Innovation for the betterment of service and in turn save
costs and maximize the profit.
5. The utilities being vertically integrated, it was difficult to
segregate the cost incurred in generation, transmission or
distribution .

8. Deregulation in developed countries
• They had a well functioning and often quite efficient electricity systems in
place when deregulation processes started.
• Either the consumers were not satisfied by the rising costs of electricity or
the utility management found operations not viable due to low tariffs.
• Deregulation was the result of pressure from the smaller players in the
business to reduce the control and power of large state –owned large
utilities by opening up the market to competition.
• Thus , deregulation started in developed countries by the pressure to
reduce costs and hence tariffs while ,simultaneously increasing the
competitiveness in markets.

9. United States of America (USA)
 USA-electric utilities were investor owned i.e, private.
 Public utilities regulatory policy act (PURPA) of 1978:
• It initiated the deregulation process in USA.
• Allows non-utility generators (NUG) enter wholesale market.
• The act required the utilities to purchase surplus electricity from the NUG at prices
up to its avoided cost.
• Total NUG generating capacity increases from 42000 MW in 1989 to 98000 MW by
1998.
 The US Energy Policy Act of 1992(EPACT):
• Provided the thrust for the development of competitive power markets.
• It mandated the electric utility industry to become deregulated and ordered the
Federal Energy Regulatory Authority (FERC) to facilitate this transition.
• In April 1996, FERC issued the final rules on Open Transmission Access
• It required all public transcos to provide open access transmission services with
non-discriminating tariffs .

10.  In December 1999, FERC issued order to reorganise transcos themselves
into different Regional Transmission Organisations (RTO) in order to
address the operational and reliability issues in transmission.
 RTO is envisaged to undertake the sole responsibility for operation and
expansion of the transmission system as well as for transmission tariff
setings.
 These initiatives broke up the traditional integrated utility model into
various organisations composed of gencos, transcos and discos and
required them to operate independently.
 The United States is one of the largest countries to implement energy
deregulation, with more than 6 million residential households switching
providers in 2015.

11. White - Continuing to monitor restructuring investor-owned utilities, IOUs, not pursuing further action now.
Yellow - Completed studies of IOUs (power providers), not pursuing further action at this time.
Light Green:– enacted legislation to implement investor-owned utility restructuring ~ transition not begun or
suspended.
Medium – Transition to restructuring begun, implementing competitive electric utility market IOUs (includes DC)
Dark Green – Functioning competitive electric utility markets for investor-owned providers, allowing all customers
choice without stranded cost or other surcharges.

12. Overview of Deregulation Outside of the USA
• England, Wales and Chile were the first European countries to deregulate.
• When it comes to energy deregulation on an international level,
consumers tend to care more about customer service than the supply of
gas and electricity itself.
• One driving force in deregulating markets across the globe comes from
rising environmental concerns about current fossil fuels and their affects
on the climate..
• As countries begin to move towards energy deregulation, it is important
for them to continue to develop their own resources. Energy deregulation
makes it easier for competitors to enter multiple global markets.
• Ireland energy consumers have the highest switching rate amongst
Europeans, with 303,187 customers switching in 2015.
• Portugal has the second highest rate of switching electricity suppliers in
Europe.
• In Europe and many other countries, energy deregulation is more
commonly known as energy liberalization.

13. Energy Deregulation in the European Union (EU)
The EU Directive on the internal electricity market came into force on 19th
February 1999.
1. It allows all large and medium sized purchasers of electricity to choose
their supplies freely from throughout the EU.
2. Introduces full competition amongst generators immediately.
3. Leading to significant price reduction across the EU to the benefit of
business and consumers.
4. The Directive does not impose a single rigid new market structure for all
countries, but sets out the minimum conditions under which
competition can develop in a fair and transparent way.

14. 5. As a result of the opening of the electricity market, cross border trading
is rapidly increasing.
6. Investment in power generation and construction of new power plants
can be made anywhere within the EU subject to meeting the set
procedure of member countries.
7. The transcos and the discos are required to provide access to their lines
to others.

15. Restructuring of the UK power sector
• Deregulation was set in motion in 1998 which subsequently led to the breaking up
of the erstwhile Central Electricity Generating Board(CEGB).
• CEGB owned nearly 60,000 MW of capacity and all the high voltage transmission
lines in England and Wales.
• Four companies emerges from the split
1. National Power
2. Power Gen
3. Nuclear Electric and
4. National Grid Company(NGC)
• NGC was made responsible for the national transmission system while there were
12 Regional Electricity Companies (REC) managing the sub-transmission and
distribution networks.
• NGC also assumed the role of the system operator with the responsibility of
promoting competition, transmission system security, reliability, congestion
management and setting up transmission prices.

16. Deregulation in the developing countries
• In most of the developing countries, the growth of the power sector was
under the direct supervision of their respective federal or state
governments.
• They held the sole responsibility on all fronts such as
a. Making investment decisions for new power projects.
b. Providing for budgetary support within their annual plan outlays.
c. Setting the operating guidelines for their generators and transmission
systems.
d. Setting the prices for the customers.
• Electricity supply was treated more as a social service than a marketable
commodity, as an essential input to the building of a sound infrastructure.
• Such state-controlled system management led to the promotion of
inefficient practices-both technical and managerial.

17. These inefficiencies are:
i. Inefficiency in production, transmission, distribution and use:
• It includes inefficiency within generating stations in terms of high auxiliary
consumption (14%of the generation), specific oil and coal consumption.
• Factors responsible are poor coal quality, poor plant load factor, high reactive
power generation, operational constraints and managerial factor.
• Inefficiencies lead to the losses incurred, both technical and commercial.
ii. Irrational pricing policies:
• Utilities had no commercial autonomy (managerial or financial).
• The governments often implemented social subsidy policies through the utilities
thereby comprising the financial viability of the latter.
iii. Overstaffing in the utilities:
• An electric utility with geographically widespread distribution system provided
an ideal opportunity to offer jobs either to fulfil election promises or to dispense
favors.
• Overstaffing resulted in inefficiency, lack of unaccountability and
mismanagement of resources.

18. South America: The initiators
1. Deregulation of Chile’s electricity sector started in 1982.
2. It induces other countries in Latin American region such as Argentina, Bolivia,
Colombia, Peru and Brazil to introduce reforms.
3. After the reforms, the transmission and distribution losses in Chile came down
from 21% in 1986 to 8.6% in 1996.
4. Electricity prices in Argentina reduces from 39$/MWh in 1994 to 32$/MWh in
1996.
5. Productivity in terms of energy generated per employee almost doubled in Chile’s
largest electricity company, Endesa from 1989 to 1996.
6. All the countries opted for the centralized pool type of model where generation
scheduling is centralized and have adopted a nodal pricing scheme for the
wholesale trades.

19. Scene in India
1. The installed capacity of publicly owned generation in India was about
101,000MW as of January 2001.
2. In spite of this, the Indian power sector faces an energy shortage of about
8% and a peak load shortage of about 10% on the average.
3. It is estimated that with a GDP growth rate of 6% per year, India would
require an investment of $140 to 200 billion.
4. Till 1991,90% investments came from public sector through five year
plans.
5. From 8th plan onwards(1992-97), government of India decided to
encourage private investment to cope up the financial requirements.
6. With Federal and state governments less willing or less able to pay for
capacity investments, there is a great interest in private investors, both
domestic and foreign.

20. Private participation in transmission
• PGCIL has been notified as central transmission utility (CTU) and State
transmission companies will be state transmission utilities.
• Participation is proposed to be limited to the construction and
maintenance of transmission lines under the supervision and control of
state transmission utility.
• Involves identification of transmission lines by the transmission utility to
be entrusted to the private sector , issuing of specifications, inviting
offers/bids, and selection of a private party.
• Transmission utility would then recommend to the state electricity
regulatory commission for issuance of a transmission license to the
selected company.
• The private company shall contract only with the appropriate transmission
utility for the entire use of the transmission lines constructed by the
company.
• The private company shall be responsible for the maintenance of the lines.

21. • At the vey beginning, the Indian Electricity sector was guided by The
Indian Electricity Act, 1910 and The Electricity (Supply) Act, 1948 and the
Electricity Regulatory Commission Act, 1998.
• The generation, distribution and transmission were carried out mainly by
the State Electricity Boards in various States.
• With effect from 2 June 2003 India has adopted a new legislation called
the Electricity Act 2003, to replace some age-old existing legislation
operating in the country.
• An act to consolidate the laws relating to generation, transmission,
distribution, trading and use of electricity for taking measures conducive
to development of electricity industry, promoting competition therein,
protecting interest of consumers and supply of electricity to all areas.

22. Salient features of the Electricity Act, 2003
 Role of Government : prepare National Electricity Policy and Tariff Policy.
 Generation :
• free from licensing
• Generation from Non-Conventional Sources / Co-generation to be promoted
 Transmission :
• There would be Transmission Utility at the Centre and in the States to undertake planning &
development of transmission system
• Load dispatch to be in the hands of a government company/organisation
• Open access to the transmission lines to be provided to distribution licensees, generating
companies.
 Distribution :
• to be licensed by SERCs
• Retail tariff to be determined by the Regulatory Commission
• Metering made mandatory
• Provision for suspension/revocation of licence by Regulatory Commission as it is an
essential service which can not be allowed to collapse

23.  Consumer Protection :
• Consumer to be given connection within stipulated time.
• Regulatory commission to specify Electricity supply code .
 Trading / Market Development:
• The Regulatory Commission to promote development of market
including trading.
• Regulatory Commission may fix ceiling on trading margin to avoid
artificial price volatility.
 Tariff Principles:
• 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.
• Regulatory Commission to look at the costs of generation, transmission
and distribution separately.

24.  Central Electricity Authority (CEA):
• main technical Advisor of the Govt. of India/ State Government with the
responsibility of overall planning
• specify the technical standards for electrical plants and electrical lines
• specify the safety standards
 Measures against Theft of electricity :
• Focus on revenue realization rather than criminal proceedings
• Assessment of electricity charges for unauthorized use of electricity by the
assessing officer designated by the State Government
 Restructuring of SEBs:
• Provision for transfer scheme to create one or more companies from SEB
• States given flexibility to adopt model/path
 Rural Electrification : No requirement of licence if a person intends to
generate and distribute power in rural area.

25. Conclusion
• Then....
The electricity price
included
 Generation, transmission
and all other costs and
were wholly charged to
the customer.
• Now...
The electricity price includes
 price of electrical energy
 Price of energy delivery
 Price of other services
such as frequency
regulation and voltage
control which are priced
separately and charged
independently but may
not be visible though in
electricity bills.

26. THANK YOU