Pramod Deo, chairman of the Central Electricity Regulatory Commission, tells Sanjay Jog about his concerns regarding progress on open access, rate revisions, competitive bidding and like issues. Edited excerpts:
Open Access in distribution is not a success story, with the reluctance from state governments and lack of clarity from state regulators. What is the present state and what has CERC done in this regard?
Open Access (OA) remains at the core of reforms in the power sector. The objective is to ensure consumers receive adequate supply while the distribution licensee improves performance. Currently, OA is fully operational at the inter-state level. The number of OA transactions during 2009-10 was 18,128 as against 778 in 2004-05. Further, the central transmission utility is reported to have received 225 applications from private developers for long-term OA, amounting to 162,898 Mw.
However, there are difficulties in full-scale implementation of OA for consumers at the intra-state level. Some states invoked Section 11 of the Electricity Act to disallow OA to generators within the state. The Electricity Act, 2003, says this is meant to be invoked only in extraordinary circumstances such as a threat to security of the state, public order and natural calamity, not to restrict open access. We in CERC have raised the issue in our statutory advice and requested the (Union) government to engage with the states and also address the issue legally.
Distribution companies (discoms) are resistant to giving OA to industrial consumers (bulk consumer category), since industrial supply rates are usually high. This monopolistic hangover is one of the biggest hurdles for OA implementation. State Load Despatch Centres (SLDCs) play an important role in implementation of OA. Ring-fencing of SLDCs from utilities and empowerment of Load Despatch Centres would remove many a hurdle in implementation of OA. The Model Intra-State Open Access Regulations prepared by the Forum of Regulators (FOR) for state electricity regulatory commissions (SERCs), which deal with issues like OA charges/surcharge, operational issues like metering, billing and settlement, etc. need to be adopted by all SERCs. One significant regulatory initiative of CERC in this context relates to regulations on connectivity and OA in the long, medium and short terms.
The state of finances of state electricity boards and utilities has been a matter of worry. What is the way out?
There has been a concern that the losses in the distribution sector are stymieing the sector’s growth. The losses of distribution companies are increasing and are about Rs 60,000 crore. This poses a challenge to capacity addition and private investor confidence would wane in the power sector if the situation persists.
A primary reason for the poor financial health of discoms is that rate revisions are not being done at regular intervals. The FOR study for 10 states shows an additional increase of 1-39 per cent is required to fully recover the cost of supply. The petitions for revision of annual revenue requirement are not being filed by discoms or are filed with delay, due to delay in subsidy transfer from the state government. The way forward is to undertake revisions regularly, ensure adequacy and rationalise the rates.
What are CERC’s views on the failure of SERCs to carry out the annual exercise of rate revision?
Inadequate rates and short-term loans for buying power in the short-term market are adversely affecting the finances of discoms. The Appellate Tribunal of Electricity (ATE) has issued an order in this regard on its own initiative and sought information from state regulators on the status of rate adequacy and revision. ATE also asked FOR to compile data from SERCs and give a report. FOR compiled the data and the report is with ATE. Recently, Bihar and MP have increased their rates and others need to follow. Efforts are being made to evolve model guidelines and harmonise the rate revision process.
What are CERC’s observations on capacity addition and related issues?
Guidelines for competitive bidding for procurement of power by distribution licensees under the Electricity Act have been issued. About 42,600 Mw of generation capacity has been contracted through the competitive bidding process. Nearly 16,000 Mw of capacity has been contracted through the Case-2 bidding process for ultra mega power projects. The average rates for these projects is in the range of Rs 2-3 per unit, much lower than the recent cost-plus ones.
Some issues have arisen regarding the competitive bidding process followed in different projects. Re-bidding/re-opening of the selected bids and reneging on contracts are some issues needed to be addressed. More, state government. policies mandating sharing of electricity generated through such projects is unwarranted. Competitive bidding for transmission projects is also underway. The bidding for six corridors has already been completed and five new projects have been identified for competitive bidding.
CERC has given investment approval for augmentation of nine transmission corridors to the CTU. The much-needed transmission pricing framework will be implemented from July 1 and it will take care of the pan-caking problem in transmission of power.
What are your views on the current state of renewable energy certificates (RECs) and renewable power obligations?
The National Action Plan on Climate Change envisages the renewable purchase obligation (RPO) to reach 15 per cent in the year 2020. Almost all states have introduced RPOs. The REC mechanism has been introduced to overcome the geographical limitations of RE generation.
Support of states is essential. Each SERC has to recognise the REC as a valid instrument for fulfillment of RPO by the obligated entities in their states. CERC notified its REC Regulations in January 2010. Within a year, 23 SERCs have come out with REC regulations, in line with the Model Regulations framed by the FORs. It is about seven months since the REC framework has been formally launched. Three trading sessions have already been undertaken successfully. This is being seen with a lot of interest by stakeholders inside and outside the country.
