1) What are the prime challenges for the power sector currently in India? What major regulatory/ policy changes will affect the power sector?

Shortage and rising prices of fuel and poor financial condition of distribution companies pose challenges to the power sector

today. A lower-than-expected increase in domestic coal production has added to the demand-supply gap. To tide over this

issue, the Government of India is seeking to modify the Standard Bidding Documents (SBDs) for Case 1 and Case 2 to

allow energy charge as a pass through. The rationale!  Given the uncertainty of fuel availability, asking the developers to

factor in the fuel risk over a period of 25 years would mean and result in inefficient and distorted price discovery. While this

is true, the long term solution lies in making the coal sector more efficient. Privatisation of coal mining could be thought of.  

We need to have coal regulator at the earliest to improve efficiency in coal production. Ministry of Power should also ensure

that in its attempt to simplify the SBD it does not end up complicating the processes. CERC has already given a statutory

advice in this context.

There are other critical issues like Land acquisition, Environmental and Forestry clearance, Rehabilitation and Resettlement

which need to be addressed. On gas front we need greater flexibility in utilization of allocated gas, enhanced efficiency in

import. More importantly we need to strengthen the downstream petroleum and natural gas regulator.

There is an urgent need to undertake tariff revisions on regular basis, ensure tariff adequacy and rationalise tariffs to

improve the deteriorating financial condition of distribution companies.

2) The financial stability for majority of the country’s DISCOMs is a key concern for the industry. What type of challenges do you face in regulating tariffs? 

 The biggest challenge for the Central Commission is to balance the interest of both the beneficiaries and the generators.

While regulating tariffs, we take into account the objectives of safeguarding consumer interest as well as ensuring recovery

of cost of electricity in a reasonable manner. Our focus has been on increasing the availability of the power plants and

improving generation efficiency by providing incentives and disincentives in tariff norms to bring more value to the

consumers. Poor financial health of the distribution companies has affected the entire value chain in power sector today.

Generation capacities are getting stranded, as discoms prefer to do load shedding rather than buying power. There have

been instances of delayed payments to generators and transmission companies. This is a serious challenge and needs to

be addressed by the SERCs and State Governments at the earliest.

3) Coal is the primary commodity that is causing electricity price hikes. Are there any other reasons causing price pressures?

While pricing of fuel has been exerting immense pressure on electricity tariffs, inflation in general and the depreciating

Indian Rupee in particular are also putting pressure on other cost components which will lead to increase in tariffs.

4) How would you assess the performance of the power sector during the on-going 12th plan?

We over-achieved the capacity addition target and installed about 20622 MW in FY 2012-13 against the target of 17956

MW. This is a good score given the challenge of fuel shortage. Our peak deficit which was 10.6% during FY 2011-12 was

reduced to 9% during FY 2012-13. Another positive indicator is that the State regulators are revising retail tariffs. I hope this

trend will continue in the years to come.

5) What are the key initiatives taken by CERC to encourage energy efficiency & conservation in India?

The Central Commission induces efficiency in operation of the power plants by tightening their operating norms in its tariff

regulations. Benefits of efficiency gains are shared with the buyers and in turn with the end consumers in every successive

control period of tariff regulations.

Given the nature of functions, the Central Commission does not directly deal with the end consumers. Consumer end

energy efficiency and conservation are taken care of by the SERCs. The Central Commission provides secretariat services

to Forum of Regulators. DSM and Energy Efficiency have been key focus areas for the Forum of Regulators (FOR). The

Forum has evolved model DSM regulations and a structure of Time of Day (ToD) tariff. It also organises capacity building

programmes on DSM and Energy Efficiency on regular basis.

6) What are CERC’s observations on renewable energy capacity addition?

Today we have about 29 GW of grid connected capacity based on renewable energy sources.   Renewable energy capacity

addition during the 11th Plan was 14.7 GW as against 6.7 GW in the 10th Plan. MNRE’s target for capacity addition during

the 12th Plan is 30 GW. Forum of Regulators (FOR) has very recently carried out a study on assessment of achievable

potential of New and Renewable Energy resources in different States during the 12th Plan Period, determination of RPO

trajectory and its impact on Tariff. The study revealed that sufficient resources are available to generate power from

renewable energy and about 40 GW capacity can be added in the system provided some of the barriers like lack of

transmission infrastructure can be removed.

7) Smart grids are being promoted as the answer to most of the demand-supply related issues for the power sector. What’s future of smart grids in India?

While capacity addition and facilitative framework of choice is important for adequacy of supply, it is equally important to

ensure that the existing assets are utilised in more optimum way.  In this scenario, smart grid technologies present an

important component of potential solution. These technologies provide greater visibility and control to utilities over their

assets and services. They make electricity grid self healing and resilient to system anomalies. Last but not the least, these

technologies empower stakeholders in controlling their transaction across the systems. We need to build greater awareness

about the potential benefits of these technologies among the regulators and the utilities. Smart Grids are capital intensive

and their benefits accrue over a longer time span. We should also immediately take up pilot projects to demonstrate cost

effective solutions.

8) What are your views and expectation from the recently formed Coal Regulator? How would CERC and the Coal Regulator share responsibilities of the power sector?

As I said we need coal regulator at the earliest to improve efficiency in coal production.   Coal is the most important input for

power generation. The coal regulator’s responsibility for power sector would be to ensure quality and quantity supply of coal

for power generation. The role of coal regulator and CERC would be complementary to each other. Efficiency in coal mining

and rationalisation of coal pricing will be an aid to CERC in achieving the objective of electricity tariff rationalisation.

Draft Guidelines CERC

The Central Electricity Regulatory Commission’s draft tariff guidelines for power utilities applicable for 2014-2019 have potential to reduce aggregate annual profits of CRISIL-rated utilities by Rs 1,400 crore, or nearly 7 per cent of their profits in the last fiscal.The rating agency CRISIL, however, believes that the guidelines will not impact the credit risk profiles of these utilities.

According to Pawan Agrawal, Senior Director, CRISIL Ratings, “The guidelines retain the crucial feature of availability-based fixed-cost recovery, which covers debt servicing for these utilities. This will help them maintain stability in cash flows, and therefore, in credit quality.” This covers 13 CRISIL-rated power utilities which come under the purview of CERC.The draft guidelines stipulate a change in the manner of reimbursement of tax, a stringent incentive structure and stricter operating parameters for utilities. The adverse impact of these

provisions is only marginally offset by benefits such as higher escalation rate for operating and maintenance expenses and increase in late-payment charges.

 

The most important stipulation in the draft guidelines is the change in reimbursement of expense on tax relating to return on equity, which will now be linked to actual tax outflow, rather than the applicable statutory tax rates as in the existing guidelines. The guidelines propose that for generation companies, the incentive be calculated on plant load factor, rather than on plant availability factor as in the current norms.Generators will now have to share a fourth of their incentives with beneficiaries. For transmission companies, the threshold for availing of incentives has been enhanced.