the regulatory process in india:

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THE REGULATORY PROCESS IN INDIA:

17 August 2001

K Balarama Reddi & Usha Ramachandra

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REFORM INITIATIVE

New Regulatory Framework : Establishment of CERC & SERCs

Restructuring of the Power Industry especially the State Electricity Boards

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GOI: LEGISLATIVE CHANGESGOI: LEGISLATIVE CHANGES

THE ELECTRICITY REGULATORY COMMISSION ACT INDIA 1998

• Setting up CERCs/SERCs

• Rationale for Tariff Fixing

• Budgetary Transfer of Subsides

ELECTRICITY BILL 2001 (Draft)

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REGULATORY REFORMS REGULATORY REFORMS

Independent regulatory commissions would be set up to:

Electricity Tariffs

Investment approvals

See to consumer complaints

The Governments role would be limited to that of a policy maker and a facilitator.

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REGULATORY COMMISSIONS - ISSUES

Appointment, Terms of office. Source of funding. Regulatory procedures. Enforcement and appeals. Legal framework.

- Electricity Regulatory Commissions Act 1998.

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WHAT COMPRISES THE ERCs?WHAT COMPRISES THE ERCs?

CERC: 5 members (1 engineering, 1 finance, 1 economics/ law/ management, Supreme court judge/Chief Justice of High Court

SERCs: 3 members (engineering, finance, law, economics, management

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Role and Function of CERC

(a) To regulate the tariff of generating companies owned or controlled by the Central Govt.

(b) To regulate the tariffs of IPPs or other generating companies that supply electricity to more than one state

(c) To regulate inter-state transmission of energy & transmission tariffs

(d) To promote competition, efficiency and economy in the activities of the electricity industry

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Role and Function of CERC(cont…d)

(e) To aid and advise the Central Govt. in the formulation

of tariff policy which shall be:-

fair to the consumers

facilitate mobilisation of adequate resources for the power sector

(f) To associate with the environmental regulatory agencies to develop appropriate policies & proceures for environmental regulation of the power sector

(g) To frame guidelines in matters relating to electricity tariff

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Role and Function of CERC(cont…d)

(h) to arbitrate or adjudicate upon disputes involving generating companies or transmission utilities in regard to matters connected with clauses (a) to (c)

(I) to aid and advise the central government on any other

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STATUS OF SERCSSTATUS OF SERCS

State Acts: Orissa, Andhra PradeshKarnatakaUttar PradeshHaryanaRajasthan

ERC (1998): Madhya Pradesh, MaharashtraGujarat, DelhiTamil Nadu, Arunachal Pradesh

West Bengal

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REGULATORY STRUCTURE : BASE CASEREGULATORY STRUCTURE : BASE CASE

SEB

Transmission

Generation

Distribution

State Government

R.E.BR.L.D.C

CentralGovernment

C.E.A.

1. Directions on matters of policy2. Approval of projects3. Regional grid controls

1

3

2

Industry Structure Regulatory Structure

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REGULATORY STRUCTURE: REFORMSREGULATORY STRUCTURE: REFORMS

SEBCorporatised

Industry Structure Regulatory Structure

G G

G

T

D

D D

State Government

CentralGovernment/

C.E.A.

S.E.R.C. C.E.R.C.

R.E.BR.L.D.C

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How the SERC is established How the SERC is established

Typically the Selection Committee constitutes:

a person who has been a Judge of the High Court- Chairperson

Chief Secretary of the concerned state -Member

Chairman or member of CEA - Member

One member of SERC - electrical engineer

Two members - law, economics, commerce, financeaccountancy, administration

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Powers of the Commission:

The Commission shall for the purposes of any inquiry or proceedings under this Act shall have the powers as are vested in a Civil Court under the Code of Civil Procedure, 1908, (Central Act 5 of 1908) while trying a suit in respect of the following matters, namely:

the summoning and enforcing of attendance of any witness and

examining on oath;

the discovery and production of any document or other material

object producible as evidence;

the reception of evidence on affidavits;

the requisition of any public record from any court or office;

the issue of Commission for examination of witnesses;

the appearance of parties and consequences of non-appearance;

the grant of adjournments at the hearing.

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Role and Function of SERC(according to the ERC Act)

(a) To determine the tariff for electricity, wholesale, bulk, grid or retail, as the case may be, in the manner provided in Section 29

(b) To determine the tariff payable for the use of the transmission facilities in the manner provided in Section 29

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Role and Function of SERC(according to the ERC Act)

(c) To regulate power purchase and procurement process of the transmission utilities and distribution utilities including the price at which power shall be procured from the generating companies, generating stations or from other sources for transmission, sale, distribution and supply in the state

(d) to promote competition, efficiency and economy in the activities of the electricity industry to achieve

the objects and purposes of this Act

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Role and Function of SERC(as may be notified by the State Govt. from time to time

(a) To regulate the investment approval for generation, transmission, distribution and supply of electricity to the entities operating within the State

(b) To aid and advise the state Govt. in matters concerning electricity generation, transmission and distribution

(c) to regulate the operation of the power system within the state

(d) to issue licenses for transmission, bulk supply, distribution or supply of electricity and determine the conditions to be included in the licences

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(cont…d)

(e) to regulate the working of the licensees and other persons authorised or permitted to engage in the electricity industry in the state and to promote their working in an efficient, economical and equitable manner

(f) To require licensees to formulat perspective plans and schemes in coordination with others for the promotion of generation, transmission , distribution, supply and utilisation of electricity, quality of service and to devise proper power purchase and procurment process (c) to regulate the operation of the power system

within the state

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(cont…d)

(g) to set standards for the electricity industry in the state including standards relating to quality, continuity and reliability of service

(h) To promote competitiveness and make avenues for participation of private sector in the electricity

industry in the state and also to ensure a fair deal to the consumers

(i) to lay down and enforce safety standards

(j) to aid and advise the state govt. in the formulation of the state power policy

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(cont…d)(k) to collect and record information concerning the

generation, transmission, distribution and utilisation of electricity

(l) to collect and publish data and forecasts on the demand for and use of electricity in the state and to require the licencees to collect and publish such data

(m) to regulate the assets, properties and interest in properties concerning or related to the electricity industry in the state including the conditions governing entry into, and exit from, the electricity industry in the such manner as to safeguard the public interest

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(cont…d)

(n) to adjudicate upon the disputes and differences between the licensees and utilities and to refer the matter for arbitration

(o) to coordinate with environmental regulatory agencies and to evolve policies and procedures fr appropriate environmental regulation of the electricity sector and utilities in the state

(p) to aid and advise the state govt. on any matter referred to the state commission by such government

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Commission’s Power to Pass Orders and Enforce DecisionsCommission’s Power to Pass Orders and Enforce Decisions

Interim orders for securing compliance when licenseeis contravening any relevant conditions of the licence

Final orders after a consultative process

Fines and charges (upto Rs.5 lakhs for an act of non-compliance and violation & Rs.20,000 per

day for every day of non-compliance

Gencos shall also comply with the ERC concerning operation & maintenance of the power system &electric supply lines in an efficient & economicalmanner

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State Advisory CommitteeState Advisory Committee

Not more than 21 members to represent the interest of

commerce, industry, transport, agriculture, labour,

consumers, NGOs and academic and research bodies in the

energy sector

Members of SERC are ex-officio members of the SAC

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What does the SAC do? What does the SAC do?

To advise the Committee on:

(1) on major questions of policy

(2) matters relating to quality, continuity and extent of service provided by the licensee

(3) compliance by licensees with the conditions and requirements of their license

(4) Protection of consumer interest (5) energy supply and overall standards of performance

by utilities

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WHAT REGULATES THE REGULATOR

1. Powers and functions of the Regulator are clearly defined in the Act

2. All decisions, directions & orders shall be in writing & shall be supported by reasons

3. Provision for appeal to the High Court of the State on the orders of the Regulator

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Ensuring Independence Of The Regulator

Specific procedure in the Act for selection through a high level Selection Committee headed by a retired supreme court judge or a retired chief justice of a high court

Fixed term of appointment with no provision for re-appointment

Specific provision in the Act for removal of members, only after a detailed enquiry by a sitting judge of the high court

Perks & privileges of high court judges

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POWERS OF THE STATE GOVERNMENTPOWERS OF THE STATE GOVERNMENT

Issue of Policy Directives on Electricity matters including overall planning and co-ordination but all policy directives shall be consistent with the objects of the Act.

State Government entitled to issue policy directives regarding subsidies to be allowed to any class of consumers or any area provided the State Government compensates for the amount of subsidy.

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Arbitration and AppealsArbitration and Appeals

Dispute between licensees to be referred to the Commission or when arbitrator appointed by Commission in which case Commission takes final decision

Appeals from decisions of Electrical Inspectorto be made to the Commission or an arbitratorappointed by it

Appeals against the orders of the Commissionreferred to the high court of the state within 60 days

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Offences and PenaltiesOffences and Penalties

Penalty for contravention of Section 14 (conditions of licenses) shall be punishable by imprisonment and/orpenalty by fine

For other contravention ---- specified in the Act.

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Regulating TariffsRegulating Tariffs

Licensee’s revenues and tariffs:

Provided that in doing so the Commission shall be bound by thefollowing parameters:

the financial principles and their applications provided in the Sixth Schedule to the Electricity (Supply) Act, 1948 read with sections 57 and 57-A of the said Act;

the factors which would encourage efficiency, economic use of the resources, good performance, optimum investments performance of license conditions and other matters which the Commission considers appropriate keeping in view the salient objects and purposes of the provisions of this Act; and

the interest of the consumers.

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RATE MAKING PROCESS

Filing of Proposals for Tariff revision

Notification in the News Papers

Receipt of objections

Public hearings by theCommission

Commission Decision Notification of Tariffs

Petition for review

Petition for Judicial review

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GRIDCO(Transmission

and Bulk Supply)

Cesco Wesco Nesco

C CC C C CC C C C

OHPC NTPCIPP CPPOPGC Generation

Bulk Supply&

Transmission

Retail Supply & DistributionSouthco

C C C C

ORISSA: PRESENT STRUCTURE

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CENTRAL ELECTRICITYREGULATORY COMMISSION

GOVERNMENT OFINDIA

CENTRAL ELECTRICITYAUTHORITY

GOVERNMENT OF ORISSA

ORISSA ELECTRICITYREGULATORY COMMISSION

TRANSMISSION ANDBULK SUPPLY LICENSEE

DISTRIBUTION &RETAIL SUPPLY

LICENSEE I


LICENSEE II


LICENSEE III


LICENSEE IV

ORISSA : REGULATORY STRUCTURE

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1. Issued Regulations for conduct of its proceedings and discharge of its functions.2. Issued Licenses for - Transmission & Bulk Supply - Distribution & Retail Supply3. Constituted a broad-based Commission advisory Committee4. Issued orders on retail Electricity Tariffs for all types

of consumers for the year 1997-98 and Bulk and Retail tariffs for the year 1998-99.5. Issued orders on Transmission charges for 1997-98 &

1998-99.

ACHIEVEMENTS OF OERCACHIEVEMENTS OF OERC

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6. Approved Grid Code

7. Approved Distribution Code

8. Issued Commission’s Observations on Load

forecast for the year upto 2005

9. Approved overall performance standards for

Distribution Licensees.

10. Oversaw the privatisation of distribution

ACHIEVEMENTS OF OERC [Con..t]ACHIEVEMENTS OF OERC [Con..t]

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Licensing of Transmission and SupplyLicensing of Transmission and Supply

APERC is empowered to issue licenses for:

Transmitting electricity in a specified area of transmission

Supplying electricity in a specified area inc. bulk supply to licensees or any other person

APERC’s decision on the matter of the above licenses is final

APERC has the power to revoke licensesLicensees submit annual accounts once a year

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ERCs: How to Gain Public AcceptanceERCs: How to Gain Public Acceptance

Public Education

Administration of an Open and Transparent Process

Validation of Consumer Participation in the Process

Demonstrated Rationale for decisions of the Commission

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REGULATORY PRACTICES: PITFALLS TO AVOIDREGULATORY PRACTICES: PITFALLS TO AVOID

Political Regulatory Capture

Commercial regulatory capture

Insufficient Accountability

“Drowning” in consumer complaint resolution

Fragmentation of regulatory functions

the regulatory process in india:

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