1 Framing Regulatory and Government Policy India Energy Mart 2004 New Delhi S L Rao

2 Electricity follows Laws of Physics  Need for central regulation and control  Not helped by being a concurrent subject  The USA experience  Electricity Act 2003 increases central control and  Powers of CERC

3 CERC at outset  Not for cost plus tariff regulation with guaranteed returns, pass through costs, including income tax, front loading, all cost savings to generators, etc.  Rather use Trading to optimize supplies  Regulate Trading and enable Markets  Regulator to ensure Fairness and Prevent abuse of monopoly supply power  Not regulate all trades

4 Government as Regulator  Central:Generation and Transmission  States-Generation, intrastate transmission, distribution and supply  Central tariffs  SEB ’ s-poor management and lack of commercial mindset leading to T & D losses, low efficiencies, overstaffing, poor metering, billing & collections

5 Regulation and Policy  Every street-level bureaucrat makes Policy  State and meta policies by legislatures and Ministries  When Regulation transferred from government to IRC, the related policy making power must also be transferred  But government must ensure its intentions are followed

6 Government Policy Examples  Reform-Private vs Public; Monopoly vs Competition  Fuel Policies (Foreign exchange, Security,etc)  Support weak and vulnerable-but cannot be at cost of supplier  Create Markets  Multi-year Tariffs  Open REB ’ s to all players  LACK OF DEBATE ON POLICY

7 Regulator Accountable to Government  Table CBR ’ s and Orders in Legislature for review  Selection, Terms, Termination, Budgets, Finances  Media and Public opinion  Judicial Review  Annual Rreporting

8 Limitations  Regulator with incomplete jurisdiction- e.g., NLC, NPC, Fuel prices  Lack of congruence between central and state regulators (captive generation, open access, reopening ppa ’ s. etc)  Weak penal mechanism  Regulating public sector

9 Introducing Trading  Trading as Government Policy with Open Access & no veto for SOE ’ s  Regulators to work out Grid Code, tariffs, open access charges  Pricing Transparently, Consult  LDC ’ s must be under ERC jurisdiction  ERC ’ s must rule on new investors  Grid Collapse an ERC jurisdiction

10 Trading requires ERC Policy  SERC ’ s : neutrality between parties  Peak and off-peak transmission pricing to use transmission capacity optimally  Regulator not to interfere in Spot, Infirm & short term trades  Uniformity on ROR, other accounting norms  Green Power at preferential prices

11 ERC ’ s must regulate all types of Trading  PPA ’ s- e.g. NTPC with SEB ’ s  Non-allocated power  Unused allocations  ABT and trading in excess availability  Surplus unused availability  Intra state

12 CERC Approach-Cautious and rule based  Long term Tx agreements to continue  Only spare Tx capacity for open access at outset  Neutral LDC ’ s (also SLDC ’ s)  Incremental postage stamp prices or contracted path method and Firm service (one week or more) with priority vs. non-firm (one hour to one month)  Open access customers topay charges for scheduling and system operation to lDC ’ s

13 Regulatory Policy Issues  What is captive generation?  Approve long term purchase contracts  Spot Trades?  Binding Contracts  When can Regulators disrespect contracts?  Standardizing all agreements  Preventing cartels  Regulators might set price caps and trades below caps  Independent LDC ’ s

14 Capability of Regulators & Staff-Do Governments have a Policy?  Selection issues  Lack of legal, economic and accounting expertise  Ideological baggage  Reluctance to use penal powers  Not helped by dominant government ownership  Roles of Appellate body and  Competition Tribuna

15 Policy Problems  Governments protecting Turf (Selections, ERC as calculating machine, Not implementing ERC Orders)  Regulators and independence-Possible Regulatory chaos if Regulators uncoordinated  Governments lack clarity on where their Policy Powers must end  Regulators issue un-implementable Orders, poor attention to information base  Poor development of informed consumer interestrs

16 Thank You