CERC Paper on Open Access Presentation by the MPERC Bhopal At New Delhi 25 September 2003

Madhya Pradesh Electricity Regulatory Commission 2 In this presentation  The Open Access Paper –Pricing design objectives –Existing Scenario –Open access transmission tariff –Methodology and procedure –Energy accounting  Other Discussion Points Objective(s) of the Paper: 1.To generate a debate on the important issues a.Identification of key issues b.Understanding the implications c.Understanding stakeholder perspectives 2.Frame regulations

Madhya Pradesh Electricity Regulatory Commission 3 Transmission Pricing Design Definition of Objectives (3.1)  Objectives defined in the Paper –Efficiency of operations and trading –Efficient use of resources –Signal for investment –Signal for location of generation/load –Compensate owner of the wires –Simple and practical  Comments on Objectives –Agree –Ensure safety of grid (Needed for all users) –Provide regulatory certainty (For overall development of the power market and removal of uncertainty to attract investors) –Provide level playing field (To new transmission utilities and transmission users)

Madhya Pradesh Electricity Regulatory Commission 4 Existing Scenario Role of the CTU (2.1), CTU Tariffs (2.2)  Proposals –Current lines based on BPTA’s –Open access only for spare capacity –“Existing transmission agreements will have to be honored…” for current and future lines built on BPTA’s  Comments –Agree that open access only for spare capacity –Agree that existing arrangements should be honored. –Who is the successor entity to SEB – State Trader / STU / DICSOM’s? Division ratio? –What when a BPTA expires, say at the end of 5 years? Consider as Open Access.  Proposals –TSC apportioned based on CGS allocation –Spare capacity paid for by beneficiaries –Open access will reimburse them partially  Comments –Need to decide who pays for unapproved expansion of system. –Transmission pays: Transmission should not be allowed to take uncovered risks –Beneficiary pays: In effect he is subsidizing later users. Preferable. –Relevant Commission must approve the excess investment in capacity at a certain margin above what is immediately required

Madhya Pradesh Electricity Regulatory Commission 5 Open Access Transmission Tariff Alternatives (4.1)  Contract path –May be adopted for those transactions where clear line of power flow can be determined. Exhibit. Contract Path B Seller Exportin g Region A C Buyer Importin g Region IPS  Incremental postage stamp method –Adopt for places where clear lines cannot be determined. –Minimum charge should be fixed for use of transmission facility for very small distances –Grid support charges also to be levied

Madhya Pradesh Electricity Regulatory Commission 6 Open Access Transmission Tariff Pricing Philosophy (4.2)  Proposals –Ceiling on an all-India basis: Purpose is to provide a signal for location of lines and transmission system users.  Observations –Purpose of allowing market forces to operate and create correct economic signals for siting of generation, loads and new lines may not be adequately met Region Total TSC (Rs. Crores) Ckt-km Unit TSC (Rs / km / MW / Month) Incremental Postage Stamp Charge NR WR SR ER Total  Suggestions –Different postage stamps for different regions –Concern: Determination of IPS For cross- regional squares

Madhya Pradesh Electricity Regulatory Commission 7 Open Access Transmission Tariff Pricing Philosophy (4.2)  Proposals –Levy on capacity reservation  Observations –Paper proposes that open access ceiling be determined assuming average loading of 500 MW as per Annexure I. –This benefits open access users at the cost of “original beneficiaries”  Comments –Disincentive to BPTA! –Ceiling should be higher than derived as above –Apply percentage markup –Alternative method may be used for determination of OA-TSC ceiling based on actual loading and not total line capacityactual loading

Madhya Pradesh Electricity Regulatory Commission 8 Open Access Transmission Tariff Sharing of TSC (4.6), LD Charges (4.7) Sharing of TSC among beneficiaries (4.6)  Proposals –TSC to be apportioned to regions based on CGS generation capacity  Comments –Inter-regional TSC should be apportioned to regions based on BPTA share from CGS plus share of IPP’s  Sharing of LDC charges (4.7)  Proposal –Total LDC charges to be calculated from the weekly LDC charges divided by installed capacity of CGS = 200 rupees per week per MW = 0.12 P/U –Revenue to go to reduce costs to original beneficiaries / successors  Comments –Treat all as equal –Bill original beneficiaries also on a weekly basis –Weekly LDC charges should be divided by total generation capacity scheduled to be handled in the week = CGS + IPP + Traded power

Madhya Pradesh Electricity Regulatory Commission 9 Methodology and Procedure Information Systems (5.1)  Proposals –Hourly updating of information –Dissemination over the Internet or other dedicated communication channel  Comments –Incorporate mechanism for advance declaration of available capacity. This will allow users to plan for open access and a move towards the development of a spot and futures market. –Frequency of advance declarations: –Twelve months ahead spare availability information –Week ahead in hourly blocks –Day ahead in 30-minute blocks –Information updating frequency: 30 minutes for actual values in real time. –Dissemination of information: –Centrally at NLDC / RLDC’s in tandem –Dedicated communication channels connecting central database, traders, distribution licensees, transmission utilities. –Information may also be posted on the Internet

Madhya Pradesh Electricity Regulatory Commission 10 Methodology and Procedure Nodal Agency (5.2, 5.4)  Proposed: –Processes all applications on FCFS –In order of priority of service  Suggestions: Options may be considered –FCFS. –Bidding. –Beauty Contest. Who judges in case of beauty contest? –Mix of the above. –What would be an appropriate mix? –A pecking order should be defined

Madhya Pradesh Electricity Regulatory Commission 11 Methodology and Procedure Special Energy Meters (5.8) and Creditworthiness (5.11) Special Energy Meters (5.8)  Proposals: –As and when required, open access customer will have to install required special energy meters  Suggestions: –May be an expensive proposition for small customers. Credit worthiness (5.11)  Proposals: –Prospective open access consumer must establish credit-worthiness  Suggestions: –Establish creditworthiness to whom? CERC / RLDC –What shall be the measurement basis for creditworthiness? –Creditworthiness of SEB’s very low –Alternatives to measurement of credit-worthiness: Security deposit, margin money, LC, bank guarantee, advance

Madhya Pradesh Electricity Regulatory Commission 12 Methodology and Procedure Types of Service (5.13), Priority of Allotment (5.15) and Penalty for Hoarding (5.16) Types of Service (5.13) –Need to clearly define Firm and Non-Firm. Also, consider number of hours per day. –What is the treatment for Non-Firm agreement longer than 1 Month? –Need to outline difference of charges for Firm and Non-firm power transmission Long Term >= 1 Y Short Term: 1 W – 1 M 1 W – 1 M 1 D – 1 W 1 H – 1 D { { Firm Service Non-Firm Service Priority of Allotment (5.15)  Proposals: –Hierarchy defined.  Suggestions: –Agree Penalty for Hoarding (5.16)  Proposal: –CERC to act on complaint.  Suggestions: –Suggest periodic review

Madhya Pradesh Electricity Regulatory Commission 13 Methodology and Procedure Curtailment Due to Constraints  Proposal –Non-Firm users before Firm users –Short-Term users before Long-Term users 1.What if there are two consumers of the same level in pecking order, and one is paying more or offers to pay more? What considerations for payment history? 2.Why should open access original beneficiaries be the last to be disconnected? Why should they not be treated at par as far as their open access portion is concerned? >= 1 Y 1 M – 1 Y 1 W – 1 M 1 D – 1 W 1 H – 1 D { { Firm Service Non-Firm Service Money:The Third Dimension  Suggestion –Pecking order outlined as below. –What is the treatment of Non-Firm agreement longer than 1 Month? Define an order considering 1. Firm / Non-firm, 2. Duration and 3. Price Paid

Madhya Pradesh Electricity Regulatory Commission 14 Energy Accounting Active Energy (6.1), Reactive Energy (6.2) and Energy Loss (6.3) Active Energy (6.1)  Proposals –Direct CTU users to comply with ABT –Embedded customers to comply with Intra-State ABT –For embedded customer, STU / SEB to be billed  Suggestions –Fix a minimum threshold for applying ABT (1. Avoids complexity, and 2. saves customer the cost of Special Energy Meters) –Dependent on whether and when State implements ABT –STU should not be billed because it is a pure wires company and has nothing to do with users of its wires adhering to schedules. –Consider billing the SLDC (1. Incentive for SLDC to perform, 2. May be difficult since SLDC is non- profit). SLDC may pass on to embedded customers or deduct from margin money / advance Reactive Energy (6.2)  Proposals –Apply to direct CTU customers –Not appropriate to apply to embedded customers  Suggestions –SERC’s shall decide whether to apply to since it impacts the State system –May have very high cost implications for smaller open access consumers Energy Loss (6.3)  Proposals –Measure past weeks losses and apply to ensuing week.  Suggestions –Agree. Simple, easy to implement and accurate –Consideration for incremental postage stamp application of losses. It is complex and not necessarily accurate.

Madhya Pradesh Electricity Regulatory Commission 15 Additional Discussion Points  Scheduling of direct contracts –Will direct contracts be incorporated into the ABT mechanism? –If yes, above what threshold level of MW contract? –If not, how will any variability on account of them be reconciled with ABT billing?  ABT in case of bilateral agreement / Dishonoring of bilateral agreement –A and B enter into agreement for 50 MW –How will ABT apply to A and B? –Case 1: A feeds the power, B does not draw fully –Case 2: A does not feed power, B continues to draw –Clear need to outline mechanism for settlement –Wheeling charges –Energy Accounting  Assessing transmission capacity (Section 5.2) –Uniform mechanism should be adopted by all constituents –CERC may like to outline assessment mechanism  Surcharge (4.9): –How will CERC determine surcharge? –Loss incurred by State utilities – SERC should decide.

MP Electricity Regulatory Commission

Madhya Pradesh Electricity Regulatory Commission 17 Open Access Transmission Tariff Pricing Philosophy – Regional Ceilings TSC in ER = 10 TSC in SR = 41 Total TSC = 51 Signal to generators: Move towards SR to reduce number of expensive SR zones Effect: Generation moves towards load Signal to transmission utilities: Invest in SR since there is more income to be made. Effect: This will reduce the SR postage stamp. SRER Signal to load: Invest in ER since TSC costs are lower. Effect: Load moves towards generation TSC in ER = 18 TSC in SR = 26 Total TSC = 43 Generation Load

Madhya Pradesh Electricity Regulatory Commission 18 Open Access Transmission Tariff Pricing Philosophy (4.2) – 1

Madhya Pradesh Electricity Regulatory Commission 19 Open Access Transmission Tariff Pricing Philosophy (4.2) – 1