Thinking about Regulations in the Power

Sector
Tirthankar Nag

Concerns Highlighted on Previous Day

Fuel Supply Issues

Financial Health

Losses of DISCOMS around 75,000 Crores in FY11-12 bulk of it is financed through short-term liabilities from the
financial institutions.
Bankers critically evaluating the sector

Competitive Bidding

Demand side issues also No demand

CIL (LoA) Letter of Association over 700 MT annually in
2011 & 2012, while its current production is around 450
MT.

Winners Curse: Risks in Post Bid Environment

Agenda
1.
2.

Why Regulation?
Power Sector

Industry is moving towards more regulation

The US History
Till World War I: Tight Regulation
World War I Great Depression: Less Regulation
1932 1970: More Regulation
1970 2008: Less regulation
2008 Onwards: More Regulation
The Indian History
Till 1990: Less regulation, but government control
1990 Onwards: More Regulation, less control
4

Why are Regulatory Interventions are

Required ?

Preventing Market Failure & Balancing Interests

Objectives of Regulation

Economic efficiency
Consumer protection
Social justice
Security of supply
Environmental protection
Preventing Anti Competitive forces
Competition Commission?

Regulatory Failure Can Destroy Companies

Case of Power Sector in California - 2000
Low Rainfall

Regulatory
Failure

Growing Demand
Form Competitive
Markets

Limited Capacity

Inadequate
Supply

Generators
Offline
Elimination of
direct access

Costly Emission
Permits
Fear of self
dealing

Utilities not credit

worthy
State long term
contracts

Divestiture of
Generation
Rising wholesale
prices

CPUC No long
term contracts

Non Payment

High Risk System

AB 1890: Price
Control

High usage

Financial Crisis
for Utilities

SCE Near
Bankruptcy
PG&E Bankruptcy

Consumer
Protection

CPUC keeps low

retail prices
during shortage

State Revenue
Bonds

State Short Term

Purchases

What can be regulated?

Pricing
Performance
Level of competition
Ownership
Sector Development

Regulatory philosophy has moved from

Command and control

Self-regulation
Incentive/benchmark based regulation
Other Forms

regulation by contract
trading permits
competition laws

A Snapshot of Regulatory Concepts

Regulatory Intervention

Market Driven
Non Market Driven

Regulatory Governance Proceduralist/Substantive

Pricing Models
Regulatory Issues
Balancing Interests

Agenda
1.
2.

Why Regulation?
Power Sector

10

Trends

Separation of carriage and content business

Carriage is mostly natural monopoly open access requirements

Content is amenable to competition

Emergence of uniform concession frameworks

Shift from Command and Control to setting benchmarked

performance based prices

Emergence of long term pricing regime

Shift towards participatory regulatory process

11

Evolution of Policy & Regulatory Landscape

Reforms

12

2003 Act

Competition

Access

Regulatory Developments

MYT tariff framework for generation & transmission

projects
Competitive procurement of power
Transmission Tariff
Tariff structure for renewable energy projects
Short term open access operational through inter state
transmission lines.
Considerable no. of inter state tarding licensees
2 power exchanges
Inter state grid operations and imbalance settlement

13

Unscheduled overdrawal by some states

Gaming opportunities

Regulatory Landscape

MYT tariff regulations & Amendments

Competitive Bidding Guidelines
Tariff regulations for renewable energy
Introduction of Renewable Energy Certificate (REC)
Generation based incentive scheme (GBIs) for wind
projects
Grant of Connectivity: long term and Medium term
open access
New transmission tariff mechanism
Restructuring of Unscheduled Interchange
Mechanism

14

Regulatory Landscape

Congestion Charge regulations

Grid code regulations
Ring fencing of SLDCs
New Interstate Trading regulations
CERC allows term ahead contracts
Power Market regulations
Price cap on traded power & fixing of trading
margins
Third power exchange in the country
Changes in Mega Power Policy

15

16

Evolution of Structural Changes

Pre -1990s

State owned monopolies

Power generation

Transmission

Distribution

Retail

Transmission &
System Operation

Distribution & Retail

Power Trading

Post -1990s

Vertical industry disaggregation

Power generation

Growth of captive
generation

Selective open
access

Now & Going

Ahead

Franchisee

16

Power generation

Transmission

Growth of captive
generation

Independent System
Operator

Distribution

Retail
Companies
Retail

Full Open access

Weak Market
Operators

Power

Trading

Strong Market
Operators

EE

Thank You
17

Dealing with Many Stakeholders

Central
Policy

State

Private/ Joint

Ministry of Power
State Government

Planning

Internal

Central Electricity Authority

Appeal

Appellate Tribunal

Regulations

Central Electricity Regulatory

Commission (CERC)

State Electricity Regulatory

Commission (SERC)

System
Operations

National/Regional Load Dispatch

State Load Dispatch Centre

System Control / ALDC

Financing

REC / PFC

Internal / State Finances

Internal

HR
Development

NPTI, UPES

Internal

Internal

Generation

Central Generating Stations

State Generating Stations

Internal / IPPs

Transmission

Central Transmission Utility

State Transmission Utility

Internal / Transmission
Companies

Distribution Licensee

Licensee/ Franchisees

Intra-state Trading Licensee

Inter/Intra-state Trading
Licensee
Power exchanges

Distribution

Trading

18

Inter-state Trading Licensee

Globally Infrastructure Utilities are Diversifying

India, JUSCO
United Kingdom, United Utilities: North West Water, Norweb
France, Suez Lyonnaise des Eaux: Lyonnaise des Eaux,
Tractebel
Germany, E.ON: E.ON Energie, Gelsenwasser
Chile, Enersis: Chilektra, Agua Potable de Lo Castillo

Many utilities cover 2 sectors

Only a few - Vivendi and Suez
Lyonnaise des Eaux cover 4
sectors

Cable TV
India, Reliance ADAG
Brazil, Companhia Forca e Luz CataguazesLeopoldina: Energipe, Teleserv, Telecabo

POWER

Telecom

Water
Gas T & D
Australia, TXU Australia Holdings:
Eastern Energy, Westar-Kinetik Energy
Argentina, SEMPRA Energy: Empresa
Distribuidora de Energia Atlantica,
Camuzzi Gas Pampeana, Camuzzi Gas
del Sur
Source: World Bank
19

Legend: Country, Parent company: Subsidiaries

Transport
India, Reliance ADAG. BSES, BSES TeleCom: Orissa
Brazil, Eletropaulo Metropolitana Eletricidade de Sao Paulo:
Eletropaulo Telecomunicacoes
Estonia, Eesti Energia: Eesti Energia Televirk
Spain, Endesa: AUNA
Republic of Korea, Korea Electric Power
Company:Powercom
Malaysia, Tenaga Nasional Berhad: Fibrecomm