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THE REGULATORY PROCESS IN INDIA:. GMP for PGCIL. 17 August 2001 K Balarama Reddi & Usha Ramachandra. REFORM INITIATIVE. New Regulatory Framework : Establishment of CERC & SERCs Restructuring of the Power Industry especially the State Electricity Boards.

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slide1

THE REGULATORY PROCESS IN INDIA:

GMP for PGCIL

17 August 2001

K Balarama Reddi & Usha Ramachandra

slide2

REFORM INITIATIVE

  • New Regulatory Framework :

Establishment of CERC & SERCs

  • Restructuring of the Power Industry

especially the State Electricity Boards

slide3

GOI: LEGISLATIVE CHANGES

  • THE ELECTRICITY REGULATORY COMMISSION ACT INDIA 1998
  • Setting up CERCs/SERCs
  • Rationale for Tariff Fixing
  • Budgetary Transfer of Subsides
  • ELECTRICITY BILL 2001 (Draft)
slide4

REGULATORY REFORMS

  • Independent regulatory commissions would be set up to:
  • Electricity Tariffs
  • Investment approvals
  • See to consumer complaints
  • The Governments role would be limited to that of a policy maker and a facilitator.
slide5

REGULATORY COMMISSIONS - ISSUES

  • Appointment, Terms of office.
  • Source of funding.
  • Regulatory procedures.
  • Enforcement and appeals.
  • Legal framework.
  • - Electricity Regulatory Commissions Act 1998.
slide6

WHAT COMPRISES THE ERCs?

CERC: 5 members (1 engineering, 1 finance, 1 economics/ law/ management,

Supreme court judge/

Chief Justice of High Court

SERCs: 3 members (engineering, finance, law, economics, management

slide7

Role and Function of CERC

(a) To regulate the tariff of generating companies owned or controlled by the Central Govt.

(b) To regulate the tariffs of IPPs or other generating companies that supply electricity to more than one state

(c) To regulate inter-state transmission of energy & transmission tariffs

(d) To promote competition, efficiency and economy in the activities of the electricity industry

slide8

Role and Function of CERC

(cont…d)

  • (e) To aid and advise the Central Govt. in the formulation

of tariff policy which shall be:-

      • fair to the consumers
      • facilitate mobilisation of adequate resources for the power sector

(f) To associate with the environmental regulatory agencies to develop appropriate policies & proceures for environmental regulation of the power sector

(g) To frame guidelines in matters relating to electricity tariff

slide9

Role and Function of CERC

(cont…d)

  • (h) to arbitrate or adjudicate upon disputes involving generating companies or transmission utilities in regard to matters connected with clauses (a) to (c)
  • (I) to aid and advise the central government on any other
slide10

STATUS OF SERCS

  • State Acts: Orissa,
  • Andhra Pradesh
  • Karnataka
  • Uttar Pradesh
  • Haryana
  • Rajasthan
  • ERC (1998): Madhya Pradesh, Maharashtra
  • Gujarat, Delhi
  • Tamil Nadu, Arunachal Pradesh West Bengal
slide11

REGULATORY STRUCTURE : BASE CASE

Industry Structure

Regulatory Structure

State

Government

Central

Government

Generation

S

E

B

1

C.E.A.

Transmission

2

Distribution

R.E.B

R.L.D.C

3

1. Directions on matters of policy

2. Approval of projects

3. Regional grid controls

slide12

REGULATORY STRUCTURE: REFORMS

Industry Structure

Regulatory Structure

G

G

State

Government

Central

Government/

C.E.A.

SEB

Corporatised

G

S.E.R.C.

C.E.R.C.

T

D

R.E.B

R.L.D.C

D

D

slide13

How the SERC is established

Typically the Selection Committee constitutes:

a person who has been a Judge of the High Court

- Chairperson

Chief Secretary of the concerned state

-Member

Chairman or member of CEA

- Member

One member of SERC - electrical engineer

Two members - law, economics, commerce, finance

accountancy, administration

slide14

Powers of the Commission:

  • The Commission shall for the purposes of any inquiry or proceedings under this Act shall have the powers as are vested in a Civil Court under the Code of Civil Procedure, 1908, (Central Act 5 of 1908) while trying a
  • suit in respect of the following matters, namely:
  • the summoning and enforcing of attendance of any witness and

examining on oath;

  • the discovery and production of any document or other material

object producible as evidence;

  • the reception of evidence on affidavits;
  • the requisition of any public record from any court or office;
  • the issue of Commission for examination of witnesses;
  • the appearance of parties and consequences of non-appearance;
  • the grant of adjournments at the hearing.
slide15

Role and Function of SERC

(according to the ERC Act)

(a) To determine the tariff for electricity, wholesale, bulk, grid or retail, as the case may be, in the manner provided in Section 29

(b) To determine the tariff payable for the use of the transmission facilities in the manner provided in Section 29

slide16

Role and Function of SERC

(according to the ERC Act)

(c) To regulate power purchase and procurement process of the transmission utilities and distribution utilities including the price at which power shall be procured from the generating companies, generating stations or from other sources for transmission, sale, distribution and supply in the state

(d) to promote competition, efficiency and economy in the activities of the electricity industry to achieve the objects and purposes of this Act

slide17

Role and Function of SERC

(as may be notified by the State Govt. from time to time

(a) To regulate the investment approval for generation, transmission, distribution and supply of electricity to the entities operating within the State

(b) To aid and advise the state Govt. in matters concerning electricity generation, transmission and distribution

(c) to regulate the operation of the power system within the state

(d) to issue licenses for transmission, bulk supply, distribution or supply of electricity and determine the conditions to be included in the licences

slide18

Role and Function of SERC

(as may be notified by the State Govt. from time to time

(cont…d)

(e) to regulate the working of the licensees and other persons authorised or permitted to engage in the electricity industry in the state and to promote their working in an efficient, economical and equitable manner

(f) To require licensees to formulat perspective plans and schemes in coordination with others for the promotion of generation, transmission , distribution, supply and utilisation of electricity, quality of service and to devise proper power purchase and procurment process (c) to regulate the operation of the power system within the state

slide19

Role and Function of SERC

(as may be notified by the State Govt. from time to time

(cont…d)

(g) to set standards for the electricity industry in the state including standards relating to quality, continuity and reliability of service

(h) To promote competitiveness and make avenues for participation of private sector in the electricity industry in the state and also to ensure a fair deal to the consumers

(i) to lay down and enforce safety standards

(j) to aid and advise the state govt. in the formulation of the state power policy

slide20

Role and Function of SERC

(as may be notified by the State Govt. from time to time

(cont…d)

(k) to collect and record information concerning the generation, transmission, distribution and utilisation of electricity

(l) to collect and publish data and forecasts on the demand for and use of electricity in the state and to require the licencees to collect and publish such data

(m) to regulate the assets, properties and interest in properties concerning or related to the electricity industry in the state including the conditions governing entry into, and exit from, the electricity industry in the such manner as to safeguard the public interest

slide21

Role and Function of SERC

(as may be notified by the State Govt. from time to time

(cont…d)

(n) to adjudicate upon the disputes and differences between the licensees and utilities and to refer the matter for arbitration

(o) to coordinate with environmental regulatory agencies and to evolve policies and procedures fr appropriate environmental regulation of the electricity sector and utilities in the state

(p) to aid and advise the state govt. on any matter referred to the state commission by such government

slide22

Commission’s Power to Pass Orders and Enforce Decisions

Interim orders for securing compliance when licensee

is contravening any relevant conditions of the

licence

Final orders after a consultative process

Fines and charges (upto Rs.5 lakhs for an act of

non-compliance and violation & Rs.20,000 per

day for every day of non-compliance

Gencos shall also comply with the ERC concerning

operation & maintenance of the power system &

electric supply lines in an efficient & economical

manner

slide23

State Advisory Committee

  • Not more than 21 members to represent the interest of commerce, industry, transport, agriculture, labour, consumers, NGOs and academic and research bodies in the energy sector
  • Members of SERC are ex-officio members of the SAC
slide24

What does the SAC do?

To advise the Committee on:

(1) on major questions of policy

(2) matters relating to quality, continuity and extent of service provided by the licensee

(3) compliance by licensees with the conditions and requirements of their license

(4) Protection of consumer interest

(5) energy supply and overall standards of performance by utilities

slide25

WHAT REGULATES THE REGULATOR

1. Powers and functions of the Regulator are clearly defined in the Act

2. All decisions, directions & orders shall be in writing & shall be supported by reasons

3. Provision for appeal to the High Court of the State on the orders of the Regulator

slide26

Ensuring Independence Of The Regulator

  • Specific procedure in the Act for selection through a high level Selection Committee headed by a retired supreme court judge or a retired chief justice of a high court
  • Fixed term of appointment with no provision for re-appointment
  • Specific provision in the Act for removal of members, only after a detailed enquiry by a sitting judge of the high court
  • Perks & privileges of high court judges
slide27

POWERS OF THE STATE GOVERNMENT

  • Issue of Policy Directives on Electricity matters including overall planning and co-ordination but all policy directives shall be consistent with the objects of the Act.
  • State Government entitled to issue policy directives regarding subsidies to be allowed to any class of consumers or any area provided the State Government compensates for the amount of subsidy.
slide28

Arbitration and Appeals

  • Dispute between licensees to be referred to the
  • Commission or when arbitrator appointed by
  • Commission in which case Commission takes
  • final decision
  • Appeals from decisions of Electrical Inspector
  • to be made to the Commission or an arbitrator
  • appointed by it
  • Appeals against the orders of the Commission
  • referred to the high court of the state within
  • 60 days
slide29

Offences and Penalties

Penalty for contravention of Section 14 (conditions of licenses) shall be punishable by imprisonment and/or

penalty by fine

For other contravention ---- specified in the Act.

slide30

Regulating Tariffs

  • Licensee’s revenues and tariffs:
  • Provided that in doing so the Commission shall be bound by the
  • following parameters:
  • the financial principles and their applications provided in the

Sixth Schedule to the Electricity (Supply) Act, 1948 read with

sections 57 and 57-A of the said Act;

  • the factors which would encourage efficiency, economic use of

the resources, good performance, optimum investments

performance of license conditions and other matters which the

Commission considers appropriate keeping in view the

salient objects and purposes of the provisions of this Act; and

  • the interest of the consumers.
slide31

RATE MAKING PROCESS

Filing of Proposals for Tariff revision

Notification in the News Papers

Receipt of objections

Public hearings by the

Commission

Petition for review

Commission Decision

Petition for Judicial

review

Notification of Tariffs

slide32

Cesco

Wesco

Southco

Nesco

ORISSA: PRESENT STRUCTURE

OHPC

IPP

NTPC

OPGC

CPP

Generation

GRIDCO

(Transmission

and Bulk Supply)

Bulk Supply

&

Transmission

Retail Supply &

Distribution

C

C

C

C

C

C

C

C

C

C

C

C

C

C

slide33

ORISSA : REGULATORY STRUCTURE

CENTRAL ELECTRICITY

REGULATORY COMMISSION

GOVERNMENT OF

INDIA

CENTRAL ELECTRICITY

AUTHORITY

ORISSA ELECTRICITY

REGULATORY COMMISSION

GOVERNMENT OF

ORISSA

TRANSMISSION AND

BULK SUPPLY LICENSEE

DISTRIBUTION &

RETAIL SUPPLY

LICENSEE I

DISTRIBUTION &

RETAIL SUPPLY

LICENSEE II

DISTRIBUTION &

RETAIL SUPPLY

LICENSEE III

DISTRIBUTION &

RETAIL SUPPLY

LICENSEE IV

slide34

ACHIEVEMENTS OF OERC

1. Issued Regulations for conduct of its proceedings and

discharge of its functions.

2. Issued Licenses for

- Transmission & Bulk Supply

- Distribution & Retail Supply

3. Constituted a broad-based Commission advisory

Committee

4. Issued orders on retail Electricity Tariffs for all types of consumers for the year 1997-98 and Bulk and Retail

tariffs for the year 1998-99.

5. Issued orders on Transmission charges for 1997-98 & 1998-99.

slide35

ACHIEVEMENTS OF OERC [Con..t]

6. Approved Grid Code

7. Approved Distribution Code

8. Issued Commission’s Observations on Load forecast for the year upto 2005

9. Approved overall performance standards for Distribution Licensees.

10. Oversaw the privatisation of distribution

slide36

Licensing of Transmission and Supply

APERC is empowered to issue licenses for:

  • Transmitting electricity in a specified area of

transmission

  • Supplying electricity in a specified area inc. bulk

supply to licensees or any other person

APERC’s decision on the matter of the above

licenses is final

APERC has the power to revoke licenses

Licensees submit annual accounts once a year

slide37

ERCs: How to Gain Public Acceptance

  • Public Education
  • Administration of an Open and Transparent Process
  • Validation of Consumer Participation in the Process
  • Demonstrated Rationale for decisions of the Commission
slide38

REGULATORY PRACTICES: PITFALLS TO AVOID

  • Political Regulatory Capture
  • Commercial regulatory capture
  • Insufficient Accountability
  • “Drowning” in consumer complaint resolution
  • Fragmentation of regulatory functions