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by Karthikeya Pisupati Deloitte Touche Tohmatsu India Pvt Limited October 15, 2003

CII – PTC Conference on The Power Market Post Electricity Act 2003: Entities, Business Models and Implications. SESSION II : EMERGING SHAPE OF DOWNSTREAM LINK - TRANSMISSION & DISTRIBUTION. by Karthikeya Pisupati Deloitte Touche Tohmatsu India Pvt Limited October 15, 2003. Context.

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by Karthikeya Pisupati Deloitte Touche Tohmatsu India Pvt Limited October 15, 2003

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  1. CII – PTC Conference onThe Power Market Post Electricity Act 2003: Entities, Business Models and Implications SESSION II : EMERGING SHAPE OF DOWNSTREAM LINK - TRANSMISSION & DISTRIBUTION byKarthikeya PisupatiDeloitte Touche Tohmatsu India Pvt LimitedOctober 15, 2003

  2. Context • More than 10 years of Reforms in the power sector • Some states have developed their own “reform Acts” • Unbundled their SEBs into G, T & D’s • Setting up of Electricity Regulatory Commissions • Privatisation of distribution (Orissa, Delhi) • Others yet to unbundle their integrated utility • Need to give thrust to reforms (in order to realise efficiencies) • Introducing markets, open access, contestability of customers etc • This presentation looks at the business models of T & D in the light of new Electricity Act, 2003

  3. India Is Following Established Path Of Industry Evolution Monopoly Transitional Competitive Scandinavia U.K. New Zealand Argentina, Chile Australia Germany United States Canada Italy Customer Contestability France South Africa Brazil India (2003) Mexico Russia/CIS Pakistan Asset Management Customer Management

  4. States position – Circa 2003 – Still Monopolies High AP Haryana Karnataka Maharastra Rajasthan Gujarat TN HP Punjab Delhi UP Uttaranchal Efficiency Levels MP Orissa Tripura Assam Sikkim Nagaland Ar.Pradesh Bihar Low Integrated Unbundled “D” Privatised Mapping based on the Report on Rating of SEBs, ICRA & CRISIL

  5. Value Drivers - By Segment Monopoly Model Competitive Model Management Focus Assets Customers Engineering Finance/ Marketing Key Competencies Physical Portfolio Customer Portfolio Value Lever Applicable Segments Transmission/ Distribution Generation/ Retail

  6. Large Consumers Bulk Supply Retail Supply Dist Wires Franchise Consumers SO Txn Wires Other Consumers TRANSCO DISCOM Open Access Unbundling Functions Trading Non-exclusivity TRANSCO DISCOM(S) Other Consumers Franchise Consumers Dist Wires SO Txn Wires Retail Supply Large Consumers Contestable Consumers GRIDCO (S) Wholesale Supply TRADECO (S) What’s the new Business Model for T & D?

  7. Implication of new business model Functionally, under T & D segment of the business, • Trading • System Operation • Transmission wires • Distribution wires • Retailing – Non contestable consumers, Tariffs Covered in the subsequent slides

  8. Physical Pricing Issues/ Concerns • Creation of Multi-buyers & Multi sellers • Define Trading models • Scheduling & Dispatch • Imbalances • Pricing of energy • Bilateral • Spot • Treatment of subsidies/ cross-subsidies in a transparent way • Move to pricing signals – SRMC/ LRMC • Balancing & Settlement modalities • Shortage of capacity • Pricing of ancillary services • Non-exclusivity of area of supply • Grid available to move power over different regions • Pricing for HT/ LT Trading • Act specifies “Non-Discriminatory” access to users • Multiple Licenses • CERC/ SERC to fix surcharge for open access with Special treatment for captive

  9. Physical Pricing Issues/ Concerns • Scheduling & Dispatch – Merit Order • Treatment of Imbalances • Spot • Ancillary services • Balancing & Settlement – need to know the physical contracts for settlement • Pricing of Imbalances • Pricing of Ancillary services • Settlement • Contract • Balance • Sophisticated system (within state) • Demand management • Treatment of shortages • minimum hrs of supply for Agriculture/ rural • Dispatch of Non-conventional System Operation • Act specifies Balancing & Settlement functions with LDCs

  10. Physical Pricing Issues/ Concerns • Accurate Measurement of energy & capacity handled • Congestion Management • Availability of system • Unbundling the “Average charges” • Contract Path • MW mile • Postage stamp/ Incremental Postage Stamp • Congestion pricing • Adequate pricing signal for maintenance of system • Determination of contract path pricing within the state • New capital expenditure • Incentive to build? Transmission wires – Inter & Intra state • Act specifies only transmission wires for CTU/ STU along with system operator function

  11. Physical Pricing Issues/ Concerns • Accurate Measurement of energy & capacity handled • Loss reduction investments • HT/LT ratio • Transformer loading • Availability of system • Unbundling the “Average charges” • cost to serve various loads • Defining “wires” cost for multiple licensees • Pricing signal for new investment (adequate for good load development) • Right to connect (for all categories immediately?) • Duplication of wires? Distribution Wires • Act specifies only metered supply after two years • Allows “inset” franchising • Special Policy for Rural distribution

  12. Physical Pricing Issues/ Concerns • Accurate measurement of LT system • Metering • Billing efficiency • Reduction of “theft” & other commercial losses • Pricing to consumers • Cost to serve • Retain customers • Customer service • Managing demand of Agriculture • Allocation rules – position in case of multi buyers system • Need to retain the creamy layer from competition • Tariff rebalancing Retailing – Franchise consumers • Act allows for special Policy for treatment of rural electrification • National tariff Policy?

  13. General System Issues • Long term PPA signed with IPP’s & other generators • Pricing pressure on adverse hydro/ thermal mix of generation • Limited number of trading players initially?(from capital adequacy, capacity to bear loss positions) • Major cash flow problems – need to still depend on large subsidy from state government • Affect private participation in the existing distribution businesses of state • Tariff principles (cross-sub elimination, agriculture tariffs, multi-year tariffs) • Competitive bid tariff route (binding)– How to define it for Trading, Wires?

  14. What are the pre-requisites for Competitive Market? • Tariff reforms • Transparent/ clear understanding of Value chain and associated costs • Elimination of supply shortage • Multi-buyer and Multi seller • Price responsive Demand and Supply • Position for generators to participate in spot market • Access to Transmission and Distribution wires • Interconnectivity to trade power across states/ regions

  15. Enablers in Electricity Act 03 • Allows Electricity Boards to unbundle/ transfer to new corporate entities • Unbundling of wires & Trading business • Fixed time frame for enunciating policy and action plan • Provision of open access • Tariff policy • Rural electrification The Act is in the right direction Modalities to be worked out - by States & Centre jointly……..

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