Interaction with IA&AS officers Role of Regulator in Power Sector: An Experience of Himachal Pradesh.

Interaction with

IA&AS officers

Role of Regulator in Power Sector:

An Experience of Himachal Pradesh

Scope• Policies and Legislative

Evolutions.• Reform Models• Common Philosophy of

Regulations.• Objectives of Commissions.• Functions of the Commissions

• Principles of Tariff setting.• Subsidies and Cross Subsidies• Grid standards• Renewables• Grievances Redressal• Electricity Market.• Regulatory Efficacy.

Experience of H.P – Progress to 100% Green Energy for Sustainable Development.

Policies and legislative Evolutions• Acts of 1887 and 1903- Private Investments with Minimum

Regulation. Protection and Safety concerns.

• Act of 2010 - Licensing by local Govts. mainly in private sector.

• Act of 1948 - State Electricity Boards and CPSUs. Govt. investments to meet development needs of the country.

• Act of 1998 - Introduce economic principles in tariff and distance Govt. from tariff setting. Creation of CERC and enabling provision for SERCs.

• Act of 2003 - Liberal framework for development, which facilitates competition. Mandatory State Commissions.

Installed Capacities (7/15)Thermal Hydro Nuclear Renewables Total

MW 1,91,664 41,997 5,780 36,471 2,75912

%age 69.5 (Coal 61%)

15.2 2.1 13.2 100

Centre Sector State Sector Private Sector Total

73671 MW 96,015 MW 1,06226 MW 180308 MW

• Total Generation 1040 BUs• Per Capita Consumption -850 Units• Private Sector Key Driver

Restructuring & Reform• Right based Legislation – right to get supply, on

payment.• Right to use Network to shop/ choose supplier- i.e.

open access• Unbundling of vertically integrated Boards to

functional corporate entities to unleash market forces.• Competitive Market for Electricity Pricing• Promote Private Investment• Standard of Performance and Customer Care.• Creation of State Regulatory Commissions

Philosophy of Regulations• Regulator aligns private behavior with pubic interest.

Emphasis is on public purpose over entities interest, be it PSU or Private.

• With greater private sector participation, more need for statutory regulations.

• Performance setting – setting standards of excellence, then enforcing compliance. Link service obligation and performance parameter with approvals and compensations.

• Due Public consultations for consideration of its decisions, including framing of regulation.

Contd…

Philosophy of Regulations

• Evaluate market to design competition and regulation.• In tariff regulations, long term interest of utilities and

consumers to be included in its futuristic policies. Profligate consumptions and environmental pollution solutions.

• Harmonize regulation and competition on continuing basis. “Central institutional issue of public utility regulation is finding the best possible harmony between inevitably imperfect regulation and inevitably imperfect competition – Alfred Kahan.

Objective of Commissions

• To Transfer Regulatory Responsibilities, including fixing of Tariff, to the Commissions to categorise power sector to develop on commercial principles by encouraging investment, competition and market development so that the consumers have access to power on price and quality competitive basis.

• There is wide diversity due to concurrent issues with Policies and regulations decided at State Levels, with MoP and National Regulator setting the overarching framework and Forum of Regulators harmonising and evolving consensus on common regulatory issues.

Function of the Centre Commissions

• Centre Commission Regulates Inter-State transmission system, inter state trading and generations which supply power to more than one State, including CPSU Stations.

Function of the State Commissions• Legislative, Quasi judicial, Adjudicative and Advisory

– Grant of licence for Distribution, Transmission and Trading.– Fix tariff for generation, intra-state transmission, wheeling and

supply of electricity in State. – Regulate Power Purchase, including price, for supply in the

State. – Promote Open Access.– Promote Renewable energy.– Specify Grid Code.– SoP and Grievances Redressal Regulations.– Advise State Government.– Adjudicate disputes between Generators and Licensee

Principles of Tariff Determination• Electricity Business are conducted on commercial

principles.• Encourage Competition, Efficiency, Economy,

Performance, Investment.• Safeguard consumers interest and at the same

time recover of cost of electricity in a reasonable manner.

• Progressively reflect cost of supply of electricity in the Tariff.

• Promote Renewables.

Cost Considered in Tariff• Power Purchase Cost – buy cheapest power, through

regulated or transparent and competitive process.• Operation and Maintenance Cost i.e. employees cost,

repair and maintenance and other administrative and general expenses.

• Depreciation of Assets.• Interest cost of debt on capital expenditure.• Interest on working capital.• Return on equity.• Less non Tariff Income

Subsidies

• Cross Subsidies among the consumer categories built in the tariff, within ±20% limits.

• Cross Subsidies to be reduced progressively.• Cross Subsidy in wheeling of R.E.• Government can subsidize tariff to any

category.

Grid Standards & Operation• A high voltage backbone system of interconnected

transmission lines, sub-stations and generating stations needed for free flow of power.

• To operate the system, independent Regional and State level System Operators, for load scheduling, dispatch and grid control in place.

• System operator has power to issue directions to maintain grid discipline.

• Centre Commission specifies charges for deviation and energy balances i.e. excess drawls/surrender of power. When demand is high and supply is short, charges are higher.

Promotion of Renewable Energy (RE)• For energy security on sustainable basis and clean

technologies for climate action.• RE power being non firm in nature and relatively

more expensive, needs promotion till reaching tariff parity.

• State Commissions mandated to promote RE by providing for grid connectivity, open access, prescribing obligations to purchase minimum percentage from R.E. sources in total consumption (RPPO) and promotional tariff, including wheeling.

Contd...

Promotion of Renewable Energy (RE)• Renewable Energy Certificates (REC) mechanism,

wherein the R.E. deficit States can purchase REC (green attribute) from RE generators who sell power to RE surplus States, as conventional power and for buyer of REC, the equivalent conventional power is treated as RE.

• Challenges: Inefficient RPPOs specified by State Commissions and non compliance of such RPPOs, evacuation, network and grid operations constraints.

SoP and Grievances Redressal

• Standard of Performance specified by Act , Commission and its compliance.

• Customer care and awareness- in house process

• Statutory Grievances Redressal institutions i.e. Forum and Ombudsman.

Electricity Efficiency and Markets• Distribution has two component i.e. Supply and

Network and therefore competition in each has different scopes.

• Wire is a natural monopoly and hence requires efficient regulations, to ensure competition in generation and supply, having regulatory certainty with long term visibility including price.

• Competition in supply (meter and below) is logical only if there is competition in generation hence starting point of competition is generation.

Competition Aspects / Stages

• Competition For the Market.– There is a barrier for entry for the Market– For private investment to be efficient, allocation

of resources are through competition, so that these go to those who can pay to enter the power market e.g. hydel sites, case-I and case-II bidding, UMPPs.

Competition Aspects / Stages• Competition In the Market.

– Supply comes from those who produce the cheapest and hence competition in the market.

– Price discovery is the function of market and market price impacts consumption and hence production.

– Regulatory terms and conditions be non discriminatory and provide level playing field.

– Indian market is financially binding but physically not i.e. price is binding but not generation.

– Hedging ( long term PPA ) block competition e.g. CPSUs. – Scheduling is based on competition i.e. merit order dispatch.– Time of the Day Tariff Merchant Power, Energy Exchanges and

Trading companies spur competition

Trad

ing

Regulatory Perspective for Market• Shift from cost based to incentive based.• Cost plus is a contract between entity and regulator.• Price is regulated so that private cost is equal to social

cost.• For high quality service, premium on cost to cover risks –

RoE• Returns being fixed, no incentive for cost cutting,

innovation, technology.• Claims higher fixed costs.• Hence deregulate or incentive based regulations.• Price cap regulation. Private cost not to exceed social

cost.

Regulatory Efficacy• Tariff frequency and adequacy. Suo motu action and

prudence.• Regulatory Assets to postpone tariff increase.

Shungloo Committee recommendations.• Move towards Cost to Serve inefficient.• “Regulatory Capture”, the behaviour of Regulators,

ostensibly independent, which becomes decisive factor. This may not be so much due to some form of corruption, but mainly because weak legislations, selections process, capacity deficits etc. e.g. RPO discretion, Regulatory assets, consumer interest.

H.P Experience• Multi Year Tariff (5 Yrs span) - Long Term visibility

and performance parameters.• Separate Regulatory Accounts Regulations, 2015• Incentive based tariff e.g. T&D losses, O&M,

Generic Levelised Tariff for Renewables.• Progressive R.E. Promotion - Higher RPO, Purchase

by HPSEBL from all R.E. sources coming up by 2022, on long term contract.

• Energy Efficiency – CFL and now Universal LED coverage

H.P ExperienceGreen Energy Policy

• 100% consumption needs from clean sources only for energy security on sustainable basis. No purchase from fossil fuel sources.

• Tariff stability and long term visibility.• Contribute to national effort on climate action. Impact of

climate change will be more severe on poor, more so in Himalyan regions. The goals of poverty reduction and low carbon economy are pillars of sustainable development.

• Ultimate milestone is that all activities driven by energy including our kitchens and automobiles, shall be fully fuelled by clean electricity, that is available form distributed generation from hydel and solar and other renewable sources dispersed all across the State.

AT & C Losses (in %)Sr. No

State 2012-13 Actual 2021-22 Proposed

01 Manipur 85.49 22.00

03 J & K 60.87 22.00

05 Bihar 54.63 21.00

09 Uttar Pradesh 42.85 15.00

10 West Bengal 34.43 21.00

12 Haryana 32.55 15.00

18 Uttrakhand 23.18 14.00

19 Maharashtra 21.95 14.00

AT & C Losses (in %)Sr. No

State 2012-13 Actual 2021-22 Proposed

21 Tamil Nadu 20.72 18.00

23 Gujrat 19.87 14.00

24 Punjab 17.66 14.00

28 Telangana 13.63 12.00

29 Kerala 10.53 10.00

30 Himachal Pradesh 9.53 10.00

31 Puducherry 9.13 11.00

All India 25.38 14.95

Renewable Power Purchase Obligation (RPPO)

Year Minimum Purchase from Renewable Sources of Total Consumption

Total RPPO %age Solar RPPO %age of total RPPO NAPCC target %age

2011-12 10.01 0.01 7.002015-16 11.25 0.25 11.002016-17 12.25 0.25 12.002017-18 13.50 0.50 13.002018-19 14.75 0.75 14.002019-20 16.00 1.00 15.002020-21 17.50 2.00 N.A2021-22 19.00 3.00 N.A

APR for FY- 16Sr. No

Particulars Submission(In Cr)

Actual(In Cr)

01 Power Purchase Expenses for supply in the state

3328.37 2771.73

02 Operation & maintenance cost 1550.40 1353.55

03 Interest & Financing Charges 607.88 196.88

04 Depriciation 160.17 70.27

05 Return on Equity 57.68 30.24

06 Less Non Tariff & Other Income 298.69 197.53

07 Less Capitaisation of Expenses 180.34

Aggregate Revenue Requirement

5228.82 4405.02

Trued Up Revenue For FY-13Particulars Approved

in APRTrue Up Petition

Now Approved

ARR after Adjustment

4155.70 4359.30 3983.00

Revenue from Sales of Power

3834.90 3581.23 3581.23

Revenue Surplus 320.80 778.07 401.77

Total Power Purchase

Year Quantum (MU) Cost (Rs. in Cr.)

Projected Actual%age

Variation Projected Actual%age

Variation

2008-09 7556.96 8233.43 8.95% 1194.07 1436.73 20.32%

2009-10 7360.54 8322.24 13.07% 1290.3 1629.18 26.26%

2010-11 7910.53 9248.00 16.91% 1574.76 2074.21 31.72%

2011-12 9023.82 9372.00 3.86% 2097.21 2255.16 7.53%

2012-13 9579.40 9675.00 1.00% 2252.44 2518.46 11.81%

Local Sales

Quantum (MU) Amount (Rs. in Cr.)Per Unit Rate

(Rs./kwh)

Projected Actual Projected Actual Projected Actual

5782.16 5460.5 2048.5 1897.4 3.54 3.47

5676.33 5814.3 1954.84 2047.04 3.44 3.52

6082.48 6642.1 2338.33 2466.40 3.84 3.71

7090.00 6918.00 2861.23 2820.55 4.04 4.08

7533.08 7223.5 3459.98 3353.24 4.59 4.64

Inter State Sales

Quantum (MU) Amount (Rs. in Cr.)Per Unit Rate

(Rs./kwh)

Projected Actual Projected Actual Projected Actual

19.62 1498.2 13.75 612.3 7.01 4.09

669.12 1284.02 124.43 216.02 1.86 1.68

387.41 1705.00 193.70 264.29 5.00 1.55

595.04 1461.5 208.26 202.36 3.50 1.38

1071.2 1428.70 374.92 227.99 3.50 1.60

Thank you