1. Implementation of Point of Connection (PoC) Methodology

2. In this Presentation Historical Background  Evolution  Regional Postage Stamp Method Drivers of Change POC Mechanism – Features Issues Regulation Amendment and Related Orders

3. Historical Background

4. Stage I Cost of Transmission clubbed with Generation Tariff Implicit Stage II Apportioned on the basis of energy drawn (Usage Based) Stage III Apportioned on the basis of MW entitlements (Access Based) Stage IV Hybrid Methodology (Point of Connection) Up to 1991 1992- 2002 2002- 2011 2011 onwards

5. Evolution of Transmission Pricing Implicit transmission pricing model  Transmission charges were clubbed with generation tariff Unbundling of generation and transmission Transmission pricing model changed from implicit to explicit  Transmission charges were apportioned on the basis of net energy drawn

6. Evolution of Transmission Pricing Late 1970’s: Regional generation projects by CPSUs  Development of associated regional transmission schemes  to enable drawal of respective shares by regional beneficiaries  Regional Postage Stamp method to suit above arrangement  Pooling of Transmission Charges of associated transmission schemes and sharing on the basis of allocation  Neutral to distance and direction

7. Evolution of Transmission Pricing Regional Postage Stamp Method: Interregional allocation  Pan caking of regional transmission charges and losses  Beneficiary states were to pay  transmission charges of other region in which generation source located  Transmission charges of intermediate regions involved in case generation source located which is not adjacent (pancacking and cross subsidisation) o …………………………………

8. Pancaking in Losses Generation Located in NER Drawee Entity in NR NER-ER Boundary ER-NR Boundary 3%4 % 5% 100 MW97 MW 93.12 MW88.46 MW

9. Drivers of Change

10. Synchronous Integration of RegionsIncreasing complexities in TransmissionOpen Access in Transmission Rapid Growth of Competitive Power Markets and Pricing Inefficiencies Changing Network utilization scenarioNational Grid / Trans-regional ISGS (UMPPs) Drivers for Change

11. Holding Pattern: Risk Mitigation 47 76

12. Network Size Complexities Buses 4830 Generating Stations 557 Generating Units 1148 Loads 2672 Branches DC Lines7 765 kV2 400 kV622 220 kV3034 132 kV5130 Total8795 Transformers 2031

13. National Transmission Pricing Framework

14. As per mandate of NEP/ TP Sensitivity to distance and direction Avoids pan- caking of charges Addresses multiple transmission licensee regime Provides economic signal for locating generation and load New Pricing Framework a necessity rather than a choice

15. Policy Mandate Provisions of National Electricity Policy Section 5.3.2 “Network expansion should be planned and implemented keeping in view the anticipated transmission needs that would be incident on the system in the open access regime. Prior agreement with the beneficiaries would not be a pre-condition for network expansion. CTU/STU should undertake network expansion after identifying the requirements in consultation with stakeholders and taking up the execution after due regulatory approvals.”

16. Policy Mandate Section 5.3.5 “To facilitate orderly growth and development of the power sector and also for secure and reliable operation of the grid, adequate margins in transmission system should be created. The transmission capacity would be planned and built to cater to both the redundancy levels and margins keeping in view international standards and practices.” “To facilitate cost effective transmission of power across the region, a national transmission tariff framework needs to be implemented by CERC. The tariff mechanism would be sensitive to distance, direction and related to quantum of flow.”

17. Policy Mandate Provisions of Tariff Policy Section 7.1(2) “The National Electricity Policy mandates that the national tariff framework implemented should be sensitive to distance, direction and related to quantum of power flow. This would be developed by CERC taking into consideration the advice of the CEA. Such tariff mechanism should be implemented by 1st April 2006”

18. Policy Mandate Section 7.1(2) “Transmission charges, under this framework, can be determined on MW per circuit kilometer basis, zonal postage stamp basis, or some other pragmatic variant, the ultimate objective being to get the transmission system users to share the total transmission cost in proportion to their respective utilization of the transmission system. The overall tariff framework should be such as not to inhibit planned development / augmentation of the transmission system, but should discourage non-optimal transmission investment.”

19. Policy Mandate Section 7.1(4) “In view of the approach laid down by the NEP, prior agreement with the beneficiaries would not be a pre-condition for network expansion. CTU/STU should undertake network expansion after identifying the requirements in consonance with the National Electricity Plan and in consultation with stakeholders, and taking up the execution after due regulatory approvals.”

20. Policy Mandate Section 7.1(7) “After coming into effect the CERC regulation on the framework for the inter-state transmission, a similar approach should be implemented by SERCs in next two years for the intra state transmission, duly considering factors like voltage, distance, direction and quantum of flow.”

21. Policy Mandate Section 7.2 Transmission Losses “Transactions should be charged on the basis of average losses arrived at after appropriately considering the distance and directional sensitivity, as applicable to relevant voltage level, on the transmission system. Based on the methodology laid down by the CERC in this regard for inter- state transmission, the Forum of Regulators may evolve a similar approach for intra-state transmission.”

22. Regulatory Initiatives Discussion Paper on Sharing of Charges and losses in Inter-State Transmission System (ISTS) (2007) Approach Paper on Formulating Pricing Methodology for Inter-State Transmission in India (May 2009) Draft Regulation on Sharing of Inter-State Transmission Charges and Losses(February 2010) Regulation on Sharing of Inter-State Transmission Charges and Losses (June 2010) 25th February 2011 NLDC 22

23. PoC Mechanism Distance Sensitivity Direction Sensitivity Quantum Sensitivity

24. Methodology Proposed in India Point of Connection (PoC) Charges  In Rs. per MW per month  Nodal / Zonal Charges  Separate Injection & Withdrawal Charge Usage Based Methodology  Based on Load Flow Studies  Hybrid of Average Participation and Marginal Participation methods PoC Charges  To be made known upfront  To be applied on Medium Term and Short Term Trades Handling Transition  To begin with 50% Uniform Charges and 50% PoC Charges  Gradual movement towards 100% PoC Charges NLDC

25. Average Participation Tracing of Power  Load Tracing  Generator Tracing 25th February 2011 NLDC 25

26. Marginal Participation  The charges are based on incremental utilization of network assessed through load flows. 25th February 2011 NLDC 26

27. Hybrid Methodology Hybrid of  Average Participation  Marginal Participation Average Participation  Used to identify slack (responding) buses for each node Marginal Participation  To compute the participation factor of each node on each line. 25th February 2011 NLDC 27

28. Distance Sensitivity Flow of electricity  Based on Laws of Physics  Independent of Contract Path Electrical Distance is captured in PoC Mechanism  Conductor Impedance  Charges of Transmission Lines

29. Farakka StateContract (%) Bihar28.74 Jharkhand9.82 Orissa13.63 West Bengal30.54 Sikkim1.63 Andhra Pradesh1.31 Tamilnadu1.84 Kerala0.79 UP2.08 Haryana0.69 Rajasthan0.69 J&K0.85 Delhi1.39 Punjab1.39 Assam2.68 Meghalaya0.65 Nagaland0.70 Arunachal0.36 Mizoram0.21 Beneficaries Contract Path

30. Electrical Path State Actual Consumption* Bihar32.40% UP26.84% West Bengal11.15% Orissa8.91% Haryana8.34% Uttrakhand3.62% Delhi3.12% Punjab3.05% Rajasthan2.43% Jharkhand0.14% * Based on the PoC Results for 2011-2012 Drawee Entities Farakka

31. Direction Sensitivity Separate PoC Rates for Withdrawal and Injection Generation Hub  High Injection PoC Rate Demand Met from Local Generation  Low Withdrawal PoC Rate ZONE A Injection PoC Rate (Rs 100000 per MW) Withdrawal PoC Rate (Rs 70000 per MW)

32. Quantum Sensitivity Access vs Usage Planning based on Access Usage reflected in PoC Rates Access is reflected in charges payable

33. Process of Computation of PoC Rates Input Data from various stakeholders Preparation of Basic Network & Load Flow Studies Network Truncation & Load Flow Studies on Truncated Network Computation of Nodal Charges (Average and Marginal Participation) Zoning of Nodes (Generation Nodes and Demand Nodes) Scaling of PoC Rates to Recover Total Charges PoC Rates Slabs

34. Nathpa Jhakri Rihand Ramagundam Farakka Kahalgaon Sipat Korba Injection from Talcher Vindhyachal Singrauli NER Zone All States are separate injection and withdrawal zone NER considered as one zone PoC Zones of India Hydro Generating Stations > 500 MW separate Zone Thermal Generating Stations > 1500 MW separate Zone Tehri Bhutan Teesta Sikkim Demand and Generation Zones Generation Zones

35. Zones are made out of nodes  Nodes are the substations appearing in the truncated network  400 kV & above substations in NR,WR,SR,ER and 132 kV & above substations in NER Nodal Charges are computed from Hybrid Method

36. Zoning……………Sample Case Bus NameOwner Generation Charges Load ChargesGenerationLoad BAWANA-GDEL_TH 312428880 3880 BAMNOL4DEL_STU 059138840 0645 BAWANA4DEL_STU 039132218 0425 MAHARANINR_PGCIL 017697566 0295 MANDOLANR_PGCIL 077146314 0793 PANIPAT *BBMB 010870697 0163 Total 312428882039856373882321

37. Computation of Zonal PoC Rate Zonal Withdrawal PoC Rate (Rs/MW/Month) = Total Charges Total LTA Zonal Withdrawal PoC Rate of Delhi: =Rs 203985635 / 3563 MW = 57244 Rs/MW/Month Zonal Injection PoC Rate of Delhi:= Rs 31242888 / 420 MW = 74388 Rs/MW/Month

38. Computation of Zonal PoC Rate Uniform Rate (Rs/MW/Month) = Total MTC ------------------------------------------------------------------------------------ (Sum of Approved Injection + Sum of Approved Withdrawal + Sum of Approved Additional Medium Term Injection + Sum of Approved Additional Medium Term Withdrawal) = Rs 5957754576 (MTC of NEW Grid) / (40161 + 33751) MW =80606 Rs/MW/Month

39. Computation of Zonal PoC Rate Net Injection PoC Rate: 0.5*82495 + 0.5*80606 =81550 Rs/MW/Month Net Withdarwal PoC Rate: 0.5*63482 + 0.5*80606 =72044 Rs/MW/Month Net PoC Rate = 50% PoC + 50% Uniform Rate Injection PoC Slab Rate of Delhi : Rs 85000 Rs/MW/Month Withdrawal PoC Slab Rate of Delhi : Rs 70000 Rs/MW/Month

40. Approved Slab Rates (Rs/MW/Month) Slab for PoC rates approved by CERC 100000 85000 70000 110000 95000 80000 NEW Grid SR Grid

41. Slab rates for PoC Losses approved by CERC Average Loss Average Los + 0.3% Average Loss - 0.3%

42. PoC Charges Slab Rates………………..(1) Envy Free Allocation Min-Max Theory Principle of Minimum Regret

43. Certainty in Transmission Rate Transmission Rate in Postage Stamp Method = Total Regional ISTS Charges (Total LTA of all states of a region)+ (Export LTA) Variation in Total Regional ISTS Charges  Approval of tariff of new assets by the Commission Variation in Total LTA  Commissioning of new generators PoC Mechanism  Single PoC Rate  Year Ahead Declaration

44. Siting Signals Hydro Generation Location  Depends upon availability of water head  Fixed Liquid Fuel or Coal Fired generation  Freight Charges vs Electron Carriage Charges Postage Stamp method  Signal for investment near buyer PoC Method  Signal for investment at efficient locations 44

45. Point of Connection Mechanism Point of Connection (PoC) Charges Usage Based Methodology Handling Transition In Rs. per MW per month Nodal / Zonal Charges Separate Injection & Withdrawal Charges To be made known upfront To be applied on Long Term, Medium Term and Short Term Trades Based on Load Flow Studies Hybrid of Average Participation and Marginal Participation methods To begin with 50% Uniform Charges and 50% PoC Charges Introduction of Slabs

46. Important Numbers 2011-12 Total Yearly Transmission Charges : 8700 Cr (approx) Total LTA : 47000 MW (approx) Total Zones : 71 (Nodes: 500 approx) Uniform Rate  NEW Grid : 80000 Rs/MW/Month  SR Grid : 90000 Rs/MW/Month 3/7/2016 POSOCO 46

49. ISSUES

50. Change in Transmission Charges Change in CERC norms  Tariff based on 2009-14 norms  Provisional Tariff approved by the Commission Inclusion of tariff of transmission system expected to be commissioned up to 30th September 2011. Avoidance of Pancaking

51. Transmission Line Vintage Transmission is a service  Same service offered by old and new lines  Power flow independent of vintage Comparison with other cybernetics  Same tariff in rail, road and air transport irrespective of vintage of carrier. Transmission Line Vintage

52. Uniform Charge Component Regulation provides  50% Uniform Charge in total PoC Rate Discussed in SOR “3.3.62 : This is a transition mechanism adopted to avoid tariff shock to any beneficiary. This may be reconsidered by the Commission after two years” Fallout of 100 % PoC  Wide variation in PoC Rates  Shock during transition

53. National Pool vs Regional Pool Uniform Charge Computed separately for NEW and SR Grid Regional boundaries losing significance  Trans Regional ISGS  Increasing Inter Regional Flows  Meshed Network Regional Pool  Signal for planning NEP 2005 and Tariff Policy 2006  National transmission tariff framework

54. Single Scenario Unavailability of Data Adjustment Prone/Gaming/Disputes Authentic Data Published by CEA Single PoC Rate  Easy to Comprehend  Stable Signal  Market Friendly

55. RPC Certified Lines Charges of RPC Certified Lines  Charges shared before 15.6.2010 considered Criteria for certifying new lines  50% or more inter state power flow Unavailability of approved Tariff RPC Certified lines charges  Should be excluded from ARR of STUs

56. Way Forward “Implement, Gain Experience & Ramp Up” Improvements in PoC mechanism based on the experience gained Similar Mechanism to be replicated in states. Section 7.1(7) of the amended Tariff Policy: “After coming into effect of the CERC Regulation on the framework for inter-State transmission, a similar approach should be implemented by the SERCs in next two years for the intra-State transmission, duly considering factors like voltage, distance, direction and quantum of flow.”

57. CERC (Sharing of Inter State Transmission Charges and Losses) (First Amendment) Regulations 2011

58. Amendment to Regulation 2 of Principal Regulations … (2) Definition of Approved Withdrawal : Sub-Clause (f) of Clause (1) of Regulation 2 substituted as: ‘Approved Withdrawal’ means the simultaneous withdrawal in MW vetted validated by Implementing Agency for any Designated ISTS Customer in a control area aggregated from all nodes of ISTS to which Designated ISTS Customer is connected for each representative block of months, peak and other than peak scenarios, at the interface point with ISTS, and where the Approved Withdrawal shall be determined based on the demand data submitted by the Designated ISTS Customers incorporating long term and medium term transactions considering Long- term Access and Medium-term Open Access;”

59. Amendment to Regulation 2 of Principal Regulations … (3) Definition of DIC  DISCOMs/ Designated Agency in State prior to PoC implementation to be treated as DIC in that State for preparation of RTA and for Billing & Collection  After Implementation, States may designate any agency as DIC Definition of ‘Target Region’ after sub-clause (t) of Regulation 2 inserted as: "(ti) 'Target Region' means the region to which a generator proposes to sell power after obtaining Long-term Access from the CTU and for which beneficiaries in the said region have not been identified."

60. CERC (Sharing of Inter State Transmission Charges and Losses) (First Amendment) Regulations 2011 Definition of YTC: Sub-clause (y) of clause (1) of Regulation 2 substituted as: “(y) ‘Yearly Transmission Charge (YTC)’ means the Annual Transmission Charges for the existing and new transmission assets of the transmission licensees and deemed ISTS Licensees including non-ISTS lines certified by Regional Power Committees for carrying inter-State power, determined by the Appropriate Commission under section 62 of the Act or adopted by the Appropriate Commission under section 63 of the Act or as otherwise provided in these Regulations”

61. Amendment to Regulation 7 of Principal Regulations Amendment to Clause (1)(l) of Regulation 7:  YTC to be revised on six monthly basis i.e., on 1 st April and 1 st October in first year  Subsequently, revision on Quarterly basis i.e., 1 st April, 1 st July, 1 st October and 1 st December Sub-Clause (m) of Clause (1) of Regulation 7 (allocation of YTC of sub-stations to transmission lines) to be deleted

62. Revenue collected from Approved Additional MTOA in a synchronous grid to be reimbursed to DICs in same synchronously connected grid having LTA in following month Injection PoC and Demand PoC charges for MTOA to target region to be adjusted against Injection PoC and Demand PoC Charges for LTA to target region without identified beneficiaries and not against LTA granted to any other target region without identified beneficiaries Generator with LTA to a target region without identified beneficiaries  Injection PoC Charges plus lowest of Demand PoC Charge among all DICs in target region for remaining quantum after offsetting MTOA Adjustment not allowed for Collective and Bilateral transactions Amendment to Regulation 11 of Principal Regulations

63. Injection PoC and Demand PoC charges for STOA to target region to be adjusted against Injection PoC and Demand PoC Charges for LTA to target region without identified beneficiaries and not against LTA granted to any other target region without identified beneficiaries Generator with LTA to a target region without identified beneficiaries  Injection PoC Charges plus lowest of Demand PoC Charge among all DICs in target region for remaining quantum after offsetting MTOA and STOA

64. Amendment to Annexure of Principal Regulations YTC computed for assets at each Voltage level and for each Conductor configuration based on Indicative Cost submitted by CTU YTC for RPC certified non-ISTS lines  To be approved by Appropriate Commission  Average YTC to be used if tariff not approved by Appropriate Commission Common methodology to be adopted by NLDC for certifying non-ISTS lines carrying Inter-State power Recovery of YTC of assets to be commissioned in Application period based on Approved/Provisional tariff Disbursement to owners of RPC certified non-ISTS lines only after tariff is approved by Appropriate Commission

65. Amendment to Annexure of Principal Regulations Following to be added after first paragraph in Step 4 of Clause (2) under Para 2.7 “The charges of the HVDC back to back inter-regional links at Chandrapur and Gazuwaka shall be included in the YTC of the NEW grid and the SR grid in the ratio of 1:1 and charges for Talcher–Kolar HVDC bi-pole link shall be shared by DICs of SR only.”

66. Thank You