Presentation on the comments of OERC on Draft Amendments to Tariff Policy

1. Presentation on the comments of OERC on Draft Amendments to Tariff Policy

2. Background • In compliance with section 3 of the Electricity Act 2003, the Central Government notified the Tariff Policy on 6th January, 2006. • Further amendments to the Tariff Policy were notified on 31st March, 2008, 20th January, 2011 and 8th July, 2011.

3. Proposed Amendment In exercise of powers conferred under section 3(3) of Electricity Act, 2003, the Central Government hereby notified the revised Tariff Policy to be effective from the date of publication of this resolution in the Gazette of India.

4. Goals to be achieved through proposed Amendments In view of the various goals defined in The National Electricity Policy • It is essential to attract adequate investments in the power sector by providing • Appropriate return on investment • To ensure availability of electricity to different categories of consumers at reasonable • Rates for achieving the objectives of rapid economic development of the country and • Improvement in the living standards of the people.

5. Goals to be achieved through proposed Amendments contd… • Balancing the requirement of attracting adequate investments to the sector and that of • Ensuring reasonability of user charges for the consumers is the critical challenge for the regulatory process. • Accelerated development of the power sector and its ability to attract necessary investments calls for, inter alia, consistent regulatory approach across the country. • Consistency in approach becomes all the more necessary considering the large number of States and the diversities involved.

6. Para-5.3 – Tariff of new transmission projects owned by GOI • Para 5.3 of the proposed amendment in Tariff Policy deletes Generation from the purview of the competitive bidding. • Section 63 of the Electricity Act, 2003 envisages that the Appropriate Commission shall adopt the tariff if such tariff has been determined through transparent process of bidding in accordance with the guidelines issued by the Central Government. Accordingly, para 5.3 of the proposed amendment should not exclude future Generation as a sector for which tariff shall be determined by competitive bidding.

7. Para 6.4(1)(iii)&(iv)- Renewable Source of Energy Generation Since in the proposed amendment, REC mechanism has been withdrawn an alternative mechanism for fulfilment of RPO compliance may be defined.

8. Para 8.0 (ii) – Quality of Supply It may be redrafted as follows:- The quality of supply shall be as per standards prescribed by the State Electricity Regulatory Commissions. Explanation – Quality of supply varies across the states due to variation in network position, long LT network, poor availability of energy, geographical location and variation in density of Consumers owing to rural-urban distribution inter alia. Therefore, as mandated in Section 86(1)(i) of the Electricity Act, 2003 the State Commissions should be vested with the function of specifying and enforcing standards with respect to quality, continuity and reliability of services taking into account these factors.

9. Para 8.0 (iii) – Application for New Connection etc. It may be redrafted as follows:- Application for connection/ disconnection/ enhancement or reduction of connected load must be responded to and disposed off within a reasonable time frame as specified by the State Commissions.

10. Para 8.0 (iv) – Complaints of disruption in Supply It may be redrafted as follows:- Complaints of disruption in supply must be responded within the stipulated time frame as specified by the State Commissions barring major breakdown or force majeure.

11. Para 8.0 (iv) Sub-para 5 – Load Forecasting May be redrafted as follows:- Appropriate Commission should mandate Distribution Licensee to undertake load forecasting every year and to publish and submit to the Commission their short, medium and long-term power procurement plans to meet the load. These forecasts should be shared by the Distribution Licensees with the STU for appropriate transmission planning.

12. Para 8.0 (iv) Sub-para 6 - PPA May be redrafted as follows:- It shall be mandatory for the Distribution Company to show to the respective Commission that they have tied up long term/ medium term power procurement plan to meet the annual average power procurement in their area of supply, failing which their license shall liable to be suspended. Explanation:It would be difficult for the DISCOMs to tie up PPAs for the power procurement owing to the fluctuation in the power market. However the DISCOMs shall have a prospective power procurement plan which shall be approved by the State Commission.

13. Para 8.2.1 (2) – Timeframe for AT&C Loss Reduction In respect of the 1st& 3rd proviso the following is suggested:- In view of the current level of AT & C Losses, the target of 15% and 10% AT&C loss levels may be achieved within a reasonable time frame instead of specific time period suggested in the proposed amendment.

14. Para 8.2.1 (2) contd.. Explanation: Many of the States have signed MoUs with Ministry of Power to avail benefit of UDAY scheme so as to restructure their financial liability and to improve operational efficiency such as reduction of loss. But some States like Odisha where DISCOMs are privatised have not been allowed to avail the benefit of UDAY scheme through financial restructuring. The underlying principle of the scheme is that the excess loss is to be borne by the respective state governments through financial restructuring programme. Therefore, non-UDAYA DISCOMs do not avail this opportunities to improve their operational efficiency. Hence, fixing uniform loss targets for all DISCOMs across the country irrespective of topology, income disparity and development indexes is discriminatory in nature. Further, some of the Utilities in some States (as in case of Odisha) are in the process of sale under Section 20 of the Act and as such there would be no buyers for the Utilities which the Act envisages.

15. Para 8.2.1(3) – Direct Benefit Transfer It is suggested that a mechanism for Direct Benefit Transfer may be defined in the New Tariff Policy.

16. Para 8.3(2) – Installation of Smart Meters in Pre-paid Mode The time frame of three years may be extended to five years Explanation:-In view of the above proposed amendment it may be appreciated that the cost of Smart Meters in the prevalent market is quite high which is about three times of the conventional meters. At present there are few smart meter manufacturers in the country in order to cater to the imminent huge demand. Therefore, getting Smart Meters is also a big issue. Since the cost of these meters is high, there would be huge tariff implications to the consumers which may be difficult to recover. Thus giving the onus to DISCOMs to undertake this activity without any guarantee of capital funding, manufacturing guarantee and technological supports would be huge burden on them given their current financial health. The Tariff Policy may, therefore, define the financial support mechanism in terms of capital funding for switching over to Smart Meter in a pre-paid mode for bigger consumers and simple prepaid meter for smaller consumers.

17. Para 8.4(3) – Smart Meters & Smart Grid In the second proviso, as explained earlier due to requirement of huge Capex, the time frame for undertaking such activities may be allowed as five years in place of two years. Explanation -The above provisions are very good in terms of policy framework and are necessary to improve efficiency of the distribution companies and to reduce AT&C losses. However, these technological interventions such as smart meters, pre-paid meters and SCADA implementation with distribution management system and energy audit functions require huge Capital investment. In view of the current poor financial health of the DISCOMs it would be difficult for them to garner the required capital funding for implementing these technical solutions. The Govt. of India, therefore, should devise a mechanism to fund these important activities for the DISCOMs.

18. Para 8.4(3) contd... In the past the privatised DISCOMs as in Odisha were deprived of the important govt. schemes such as R-APDRP and UDAY. Since the Electricity Act mandates universal service obligations on DISCOMs, irrespective of their status, these schemes should be made applicable without any discrimination to all DISCOMs. The privatization of DISCOMs is envisaged and mandated in the Electricity Act, 2003 as a part of reform process of the electricity sector to bring in a competitive environment. Depriving privatized DISCOMs from theGovernment of India schemes puts them in a disadvantageous position.

19. Para 8.5.1 – Discontinuance of Cross Subsidy The proposed second proviso may not be incorporated and the cross subsidy surcharge may continue as per the provision of Section 42 (2) proviso (3) of the Electricity Act.. Explanation:- The proposed amendment that the open Access customers shall be liable to pay cross subsidy surcharge for a maximum period of one year would affect the DISCOMs and their network expansion planning. The network capacity is reserved by the DISCOMs by incurring huge capital expenditure towards building of distribution infrastructure for all categories of consumers including Open Access customers. In the advent of the addition of new demand, augmentation of network capacity is required. Therefore, the discontinuance of cross subsidy surcharge after one year would be double whammy for the DISCOMs. Considering such financial impact, elimination of cross subsidy surcharge from open access customers is not desirable. Further, it is against the spirit of Section 42(2) proviso (3) of the Act which envisages that such surcharge and cross subsidies shall be progressively reduced in the manner as may be specified by the State Commission.

20. Thank You