Central Electricity Regulatory Commission
SUMIT KUMAR
September 23rd, 2010
0

(Regulatory Commission for PSU’s in Power Sector)

JurisdictionMinistry of Power, Govt. of India

Formed24 July 1998

Head Quarter – New Delhi

ChairpersonDr. Pramod Deo

Parent AgencyMinistry of Power

MissionThe Commission intends to promote competition, efficiency and economy in bulk power markets, improve the quality of supply, promote investments and advise government on the removal of institutional barriers to bridge the demand supply gap and thus foster the interests of consumers.

History

recognizing the needs for reforms in the electricity sector nationwide, On 2 July 1998 the Central Government of India moved forward to enact the Electricity Regulatory Commission Act of 1998,which mandated the creation of the Central Electricity Regulation Commission with the charge of setting the tariff of centrally owned or controlled generation companies. Ministry of Power, India, has published the Electricity Regulatory Commissions Act, 1998. Apart from CERC, the act also introduced a provision for the states to create the State Electricity Regulation Commission (SERC)along with the power to set the tariffs without having to enact separate state laws.

Mr.S.L.Rao was the first Chairman of CERC (1998–2001).

Central Electricity Regulatory Commission (CERC), a key regulator of power sector in India, is a statutory body functioning with quasi-judicial status under sec – 76 of the Electricity Act 2003. CERC was initially constituted on 24 July 1998 under the Ministry of Power’s Electricity Regulatory Commissions Act, 1998 for rationalization of electricity tariffs, transparent policies regarding subsidies, promotion of efficient and environmentally benign policies, and for matters connected Electricity Tariff regulation. CERC was instituted primarily to regulate the tariff of Power Generating companies owned or controlled by the government of India, and any other generating company which has a composite scheme for power generation and interstate transmission of energy, including tariffs of generating companies.

Functions

The Commission intends to promote competition, efficiency and economy in bulk power markets, improve the quality of supply, promote investments and advise government on the removal of institutional barriers to bridge the demand supply gap and thus foster the interests of consumers. In pursuit of these objectives the Commission aims to –

  • Improve the operations and management of the regional transmission systems through Indian Electricity Grid Code (IEGC), Availability Based Tariff (ABT), etc.
  • Formulate an efficient tariff setting mechanism, which ensures speedy and time bound disposal of tariff petitions, promotes competition, economy and efficiency in the pricing of bulk power and transmission services and ensures least cost investments.
  • Facilitate open access in inter-state transmission
  • Facilitate inter-state trading
  • Promote development of power market
  • Improve access to information for all stakeholders.
  • Facilitate technological and institutional changes required for the development of competitive markets in bulk power and transmission services.
  • Advise on the removal of barriers to entry and exit for capital and management, within the limits of environmental, safety and security concerns and the existing legislative requirements, as the first step to the creation of competitive markets.

Advisory Functions

  • Formulation of National Electricity Policy and Tariff Policy.
  • Promotion of competition, efficiency, and economy in the activities of the electricity industry.
  • Promotion of investment in electricity industry.
  • Any other matter referred to the Central Commission by the Central Government.

Evolution of Electricity Tariff & Role of CERC

Single part tariff

A system of single-part tariffs was in vogue in India for pricing of thermal power prior to 1992. The single-part tariff for a station was calculated to cover both the fixed cost as well as the variable (energy) cost at a certain (normative) generation level.

Demerit:

  1. Energy production above the normative generation level yielded additional revenue. i.e., a surplus over the fixed and variable cost of the station.
  2. The incentive and disincentive for power generation got linearly linked to the annual Plant Load Factor (PLF) of the generating station.

Two part tariff for Generation as per K.P. Rao Committee (1992)

Finding that the single-part tariff, particularly for Central generating stations, was conducive neither to economic generation of power as per merit-order, nor to satisfactory operation of the regional grids, the government of India adopted in 1992 a two-part tariff formula for NTPC stations based on the recommendations of the KP Rao Committee.

Recognizing that there would be no motivation on the part of NTPC (Central generating stations) to maintain a high level of efficiency and availability if it was paid the full fixed cost irrespective of level of generation and variable cost for the quantum of energy actually generated, the K.P. Rao Committee had recommended a scheme of incentive/disincentive, as a variant of a simple two-part tariff. The scheme provided for linking of incentive and disincentive with Plant Load Factor (PLF) plus deemed generation, which in effect is Plant availability.

Evolution of Availability Based Tariff (ABT)

The serious problems of regional grid operation however continued even after 1992. This was because the K.P. Rao Committee had been able to tackle only one end; the Central generation side. Overdrawals by some State Electricity Board’s during peak-load hours and under-drawals during off-peak hours continued unabated, causing serious frequency excursions and perpetual operational/commercial disputes.

In the year 1994, M/s ECC of USA were commissioned under a grant from Asian Development Bank to undertake a comprehensive study of the Indian power system and recommend a suitable tariff structure.ECC submitted their report in February, 1994, recommending Availability Tariff for generating stations, which was accepted in principle by GOI in November, 1994. A National Task Force (NTF) was constituted by the Ministry of Power in February, 1995 to oversee the implementation of ECC’s recommendations. Based on NTF deliberations between 1995 and 1998, Ministry of Power had crystallized the formulation for the so-called Availability Based Tariff (ABT) .

With the spirit of the Electricity Regulatory Commissions Act 1998 and consequent upon transfer of relevant powers vested under section 43 A (2) of the Electricity (Supply) Act 1948 to the CERC with effect from 15 May 1999, GOI forwarded the above draft ABT notification to CERC vide OM dated 31.5.1999 for finalization after due deliberation. The draft notification was then issued through a public notice and comments/objections were invited. The Commission in July 1999 held detailed hearings on the above. The ABT order dated January 4, 2000 of the Commission departs significantly from the draft notification as also from the prevailing tariff design.

Standard Tariff Model of CERC

Tariff for supply of electricity shall comprise two parts:

  1. Fixed or Capacity Charges (For recovery of Annual Fixed Cost)
  2. Energy or Variable Charges (For recovery of Primary Fuel Cost wherever applicable)

The annual fixed cost (AFC) of a generating station or a transmission system shall consist of the following components

  1. Return on equity (RoE);
  2. Interest on loan capital;
  3. Depreciation;
  4. Interest on Working capital;
  5. Operation and maintenance expenses;
  6. Cost of secondary fuel oil (for Coal-based & Lignite fired generating stations);
  7. Special allowance for Renovation and Modernization or separate compensation allowance, wherever applicable.

The Energy charge shall cover the Primary fuel cost and limestone consumption cost (where applicable), and shall be payable by every beneficiary for the total energy scheduled to be supplied to such beneficiary with fuel and limestone price adjustment

Relation with Other Power Sector Bodies (MoP,CEA, Appellate Tribunal)

Appellate Tribunal and CERC

Appellate Tribunal for Electricity has been established by Central Government for those who are not satisfied with the Central Electricity Regulatory Commission order or with a state. The Tribunal has the authority to overrule or amend that order, just like the Income-Tax tribunal or the Central Administrative Tribunal. The tribunal has to be approached within 45 days of the aggrieved person getting the order.

Central Electricity Authority (CEA) and CERC

Since 1 April 1999 CEA has entrusted CERC with the task of regulating power tariffs of central government power utilities, inter-state generating companies, inter-state transmission tariffs. Section -76 of Electricity Act, 2003 stipulates that CERC shall consist of the a Chairperson and three other Members. And one of the CERC members (Ex-Officio) has to be Chairman of CEA.
In Indian Power Sector, CEA takes care of:

  1. Planning Regulation where power demand and supply gap has to be regulated.
  2. Construction regulation where Construction of Thermal, Hydro, Gas Based Power Plants and Power systems are regulated in the right manner.

Whereas CERC take care of third aspect of power sector regulation -

3.Tariff regulation, a purely economic exercise.

National Electricity Policy is normally formulated in consultation with and taking into account the views of the Central Electricity Regulatory Commission (CERC), Central Electricity Authority (CEA), and State Governments.

SERC and CERC

CERC and State Electricity Regulatory Commission (SERC) are the two electricity regulators — one operating at the central level and the other at various state levels. CERC’s primary function was to regulate the tariffs of central generating stations as well as for all interstate generation, transmission and supply of power. Whereas SERC’s primary function was to determine bulk and retail tariffs to be charged to customers, regulate the operations of intrastate transmission , including those of the State Load Despatch Center (SLDC). During Parliamentary Standing Committee on Energy in the year 2001, SERC being established in states, for formulating standards relating to quality, continuity and reliability of service for the electricity industry have failed in their efforts. There was a proposal of having benches of the Central Electricity Regulatory Commission (CERC) in five to six locations instead of having a SERC in each state, but the Committee that has rejected the proposal stating it was not possible unless states were willing to accept such a proposal.

Ministry of Power and CERC

MoP entrusts CERC for providing escalation rate for coal and gas, inflation rate based on WPI and CPI, discount rate, and dollar-rupee exchange variation rate for the purpose tariff determination.

Power Exchange Companies and CERC

Central Electricity Regulatory Commission (CERC) has issued the Power Market Regulations, 2010 which will govern transactions related to ‘’Energy trading’’ by companies like Indian Energy Exchange (IEX), Power Exchange India (PXI), National Power Exchange (NPX) in various contracts related to electricity. The regulations have been issued by the CERC in exercise of its powers under section 66 of the Electricity Act, 2003, which is aimed at taking measures conducive to development of the electricity industry, promoting competition therein, protecting interest of consumers and enhancing supply of electricity.

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