Regulatory Issues Dr. M. K. Iyer, Member Finance GUJARAT ELECTRICITY REGULATORY COMMISSION

REGULATORS –Balancing the key Stakeholders Regulation is the creation and enforcement of rules that promote the efficiency and public interest ERC UTILITIES CONSUMERS LENDERS ENERGY MARKET PLAYERS PROJECT INVESTORS GOVERNMENT & POLICY MAKERS Regulation is ... rule-making to implement Government policies application & enforcement of rules protecting the “public interest” ensuring consistency and transparency on the part of all parties active in the sector

New Avenues in Power Sector The Electricity Act, 2003 and Gujarat Electricity Industries (Reorganisation and Regulation) Act, 2003 envisages various activities for taking conducive measures to: Allow development of power market Envisage competition Protect interest of consumers and supply of electricity to all areas Rationalize electricity tariff Promote efficient and environmentally benign policies Open Access in Transmission and Distribution Power Trading Implement Availability Based Tariff

Making Competitive Power Market National Electricity Policy (2005) enjoins upon Appropriate Commission to undertake development of power market Power / Energy Exchanges introduced in India enabling market to discover a uniform market clearing price and market clearing volume To make electricity market competitive following elements are necessary: Several buyers and sellers Demand and supply responsiveness to price Equal access to essential facilities of transmission and distribution Liquid and efficient market places Application of Open Access in phased manner

The Regulatory Process – Timeline Floating of consultation Paper Invitation of Comments Open Hearings Draft Regulations Final Regulations and Order after considering comments

Regulatory Approach Enabling competition Protecting consumer interest Orderly development of electricity market – Market Rules and Surveillance Determine tariff determination with transparent & participatory process Regulations enforceable and predictable decisions

Accountability, Transparency and Public participation The transparency, efficiencies and timelines of regulatory procedures. Ethical and procedural obligations. All documents and information used for decision making should be available for public inspection. A description and analysis of all evidence taken into consideration A clear decision on the underlying issues and rationale. Various comments offered by participants during the proceedings are considered Space for Public Participation in the Regulatory process Institutional mechanism for representation of interests of weaker sections / stakeholders Participation by civil society in the regulatory process.

Initiatives By Forum Of Regulators (FOR) 'FOR' Constituted Working Groups/Task Force on the following Issues: Code of Ethics Demand Side Management (DSM) & Energy Efficiency Loss Reduction Strategies MYT Framework and distribution margin Open Access - Theory and practice etc. Policies on renewable Protection of consumer interest Metering Issues Staffing of Electricity Regulatory Commissions Standardization of Regulatory Accounts Task Force for implementation of FOR recommendations Task Force on Renewable Energy Certificates (RECs)

FOR’s Commendable Contribution Adoption of best practices & experiences Developed Model Regulations - to be adopted by SERCs International Co-operation Policy implementation issues Legal opinions Training

Open Access Initiatives by GERC: Capacity granted for Open Access increased from 551 MW to 750 MW. Reduced the cross subsidy charges from Rs. 1.80 per Unit in 2005-06 to Rs. 0.51 per Unit in 2008-09 Rationalized Transmission and wheeling charges Comments on new Draft regulations on Open Access are invited

Intra-state Availability Based Tariff (ABT) Mechanism ABT – Brought about the effective day ahead scheduling and frequency sensitive charges for the deviation from the schedule for efficient real-time balancing ABT - Mechanism brings grid discipline and improve efficiency of the power system GERC Initiative: GERC is among the first regulators to introduce ABT mechanism Implementation of Intra-state ABT with effect from 5th April 2010. which is applied to generators, distribution licensees, Captive Power Plants connected with grid.

Promoting Renewable Sources of Energy GERC notified the regulation on Procurement of Energy from Renewable Sources Renewable Power obligation revised - Specified Minimum Percentage of the total consumption of its consumers including T&D losses during year (for Distribution Licensees) Year Minimum Quantum of Purchase (in %) from renewable energy sources (in terms of energy in kWh)   Total Wind Solar Biomass, bagasse and others 2010 - 11 5.00% 4.50% 0.25% 2011-12 6.00% 0.50% 2012-13 7.00% 5.50% 1.00% Separate RPO for wind, solar and other renewable energy based on the availability of such sources RPO applicable to the Captive and Open Access consumers/users as and when a separate notification is issued by the Commission.

REC Introduction GERC is the First State Regulatory Commission to incorporate Renewable Energy Certificate in its Regulations of 2010 Necessary provisions in the Procurement of Energy from Renewable Sources Regulations, 2010 for Renewable Energy Certificate (REC) Sale of Renewable Energy under REC Regime Sale of conventional Electricity Component to Local Distribution Licensees REC Component to Obligated Entities Gujarat Energy Development Agency (GEDA) as the State Nodal Agency For accreditation and recommending the renewable energy projects for registration Function in accordance with the directions issued by the Commission and to act in accordance to the CERC (Terms and conditions for recognition and issuance of Renewable Energy Certificate for Renewable Energy Generation) Regulations, 2010

Consumer Grievances Redressal Forum Total Eight CGRF in the State Independent members appointed by the Commission Growing Awareness Amongst Consumers Year Number of complaints pending at the beginning of the year Number of complaints Received during the year Number of complaints resolved during the year In favor of consumer Number of complaints resolved during the year In favor of Licensee Others 2005-06 227 50 35 37 2006-07 105 278 149 74 63 2007-08 97 316 212 92 67 2008-09 42 322 195 62 71 2009-10 740 267 115

Electricity Ombudsman Commission has appointed an independent State Electricity Ombudsman. Effectiveness of the Ombudsman Mechanism. Year Number of complaints pending at the beginning of the year Number of complaints Received during the year Number of complaints resolved during the year In favor of consumer Number of complaints resolved during the year In favor of Licensee Others 2005-06 8 - 4 2006-07 12 15 2007-08 1 54 47 2008-09 51 55 2009-10 56 17 13 3 2010-11 27 111 46 45 30

Projected, Approved and Actual ARR Comparison Year 2009-10 Utility Actual Approved % Difference DGVCL 4,448 3,907 13.80% MGVCL 2707 2,349 15.23% PGVCL 5641 5,341 5.60% UGVCL 4498 4,107 9.50%

Regulatory Challenges :Tariff issues Tariff Determination issues Actual Performance Vs Regulatory norms – how far to mitigate Prudence Check – how far useful? Consequences for disallowing amount of utilities Income Tax as a pass through? Delay in filing tariff petitions Suo-moto proceedings for tariff process Would suo-moto proceedings reduce tariff?

Regulatory Challenges : Competition Introducing Parallel Licensees in one area Tariff ceilings may be set by regulator Encouraging Open Access Cross subsidy Subsidy to compensate full or partial revenue loss of existing licensee? Existence of inter-category and intra-category cross subsidies Shortage of Supply State-of-the-Art Accounting System Retail Business Vs Wire Business Competition in Retail and ownership of wire business Distributed Generation: Promotion of RE sources

Regulatory Challenges: Regulatory Effectiveness Has the Regulatory system been effective in service quantity and quality, investment, productivity growth, costs and prices? Has it helped foster a commercially viable industry? Has it encouraged progress toward best-practice regulation and industry reform? What type of sector outcomes have occurred? Are they consistent with outcomes envisaged by the Act(example increased access rates, investment, and reduction in budget subsidies)? Effectiveness of section 142 and sec 146 of EA 03 in ensuring compliance. Limited regulatory resources (Lack of money, specialized & experienced staff ) Perception of consumers: Affordability vs Profit to Utilities

Some Solutions… Harmonization of Regulations across SERCs Need for Human Resources Development De-regulation to some extent and promoting competition No “Micro-management’ of Utility Development of Regulatory Services – Cadre Posts Financial independence of Regulatory commissions

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