Thinking about Policy & Regulations in

the Power Sector

Tirthankar Nag

Did Consumers or Industry Make the Right Choice?

Exercise: The Qwerty Keyboard

Agenda
1.
2.
3.

Why Regulation?
Regulating the Infrastructure Sector
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

Regulation

To regulate: to control, especially by rules, administer, conduct,

direct, govern, manage, monitor, order, organize, oversee, restrict,
and supervise.

Regulation: rule, in accordance with rules or conventions, by

law, commandment, decree, dictate, directive, edict, law order,
requirement, restriction, rule, and statute.

Oxford Dictionary

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

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
Level of integration
Ownership
Sector Development

Types of Regulation

Command and control

Self-regulation
Incentive-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
Pricing Models
Regulatory Issues
Balancing Interests

10

Agenda
1.
2.
3.

Why Regulation?
Regulating the Infrastructure Sector
Power Sector

11

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
12

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

Infrastructure Regulatory Bodies in India

Electricity

Natural Gas

TAMP

Airports

13

TRAI (notified Broadcasting)

TDSAT

Ports

PNGRB
APTEL (additional Bench)

Telecom

CERC/ SERCs Regulators

APTEL

AERA

Posts/ Coal - on the cards

No separate regulator as yet for:

Coal
Roads

Railways

NHAI acts as the regulator as well as operator

Railways act as operator and regulator

Posts

14

Proposal exists

Recent 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 and focus on regulatory reform and
governance

Setting benchmarked performance based prices

Emergence of long term pricing regime

Shift towards participatory regulatory process

15

Agenda
1.
2.
3.

Why Regulation?
Regulating the Infrastructure Sector
Power Sector

16

Evolution of Policy & Regulatory Landscape

Reforms

17

2003 Act

Competition

Access

18

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

18

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

Industry Maturity Where is India ?

Canada

Industry Maturity

Poland
China

UK

Australia
Germany

France
Indonesia Russia
Turkey

Brazil

OPENING

DEVELOPING
Market Stage

19

US

MATURE

Industry Maturity
Canada

Industry Maturity

Poland
China

UK

Australia
Germany

France
Indonesia Russia
Turkey

India (2012)
India (2003)
Brazil
India (1991)

OPENING

DEVELOPING
Market Stage

20

US

MATURE

Exercise: 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

21

Inter-state Trading Licensee

IMPORTANCE

Exercise: Dealing with Many Stakeholders

HIGH

LOW

Keep
Satisfied

Keep
Engaged

Minimal
effort

Keep
Informed

LOW

HIGH

INTEREST
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Simplistic Regulatory Cost Structure

Losses

TRANSCO Returns Network

O&M

Charges

+
Returns
O&M

Cost

Bulk
Supply
Bulk
Supply

Fuel

GENCO

23

O&M
Transco
Network
Charges

Losses
Capital

Losses
Returns

DISCOM

Cost Structure: Hypothetical Utility

Generation

Power
Utility

Generation 1.97

Transmission
Transmission Cost 0.31
Loss
0.05
Average Cost to
Distribution

2.33

Distribution Cost
Distribution loss

2.00
0.84

Average CoS

5.17

Average Revenue

24

Cost
Coverage

Distribution

4.88

94%

Understanding Cost Components

WBSEDCL, 2009-10
Cost Items
Power Purchase
Fuel
Employee
O&M
Interest
Depreciation
Admin & General
Others
Average Cost of
Supply
Average Revenue
Gap

Cost Composition, All India, 2011-12

Rs./kWh
2.51
0
0.36
0.04
0.16
0.1
0.02
0.03
3.23
3.27
0.04

Depreciation; 4% Interest; 8%
Misc; 1%
Estab/Admin; 11%
O&M; 2%
Fuel Cost; 5%
Power Purchase; 69%

Source : Annual Report 2011-12, Planning Commission

25

Financial Performance of DISCOMS: 2012

20000

17,907

Net revenue from operations

15000
Rs. Crore

Net Profit

10000
5000
0

26

7,918

8,496

4,681
554

1,237

1,170

2,000

671 31

541 12

Additional Services by Energy Companies

Services offered by Direct Energy

Revenues of Direct Energy

Residential customers

HVAC (household ventilation and air

conditioning)

Plumbing

Home improvements

Water heater services

Electrical appliance services

9% 6%
24%

61%

Commercial, institutional and industrial

customers

HVAC

Mass market energy

Building automation

Commercial and industrial energy

Facility maintenance

Home and business services

Energy management consulting services

Upstream and wholesale energy

Source: www.directenergy.com

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Thank You
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