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Implications of the Electricity Bill on Captive Plants and IPP Legal issues June 6, 2003

Implications of the Electricity Bill on Captive Plants and IPP Legal issues June 6, 2003. Hemant Sahai Senior Partner. Electricity Bill. Statement of Objects and Reasons

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Implications of the Electricity Bill on Captive Plants and IPP Legal issues June 6, 2003

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  1. Implications of the Electricity Bill on Captive Plants and IPP Legal issuesJune 6, 2003 Hemant Sahai Senior Partner

  2. Electricity Bill Statement of Objects and Reasons Bill “to consolidate the laws relating to generation transmission, distribution, trading and use of electricity and generally for taking measures conducive to development of electricity industry, rationalization of electricity tariff, ensuring transparent policies regarding subsidies, promotion of efficient and environmentally benign policies, constitution of Central Electricity Authority, Regulatory Commissions and establishment of Appellate Tribunal and for matters connected therewith or incidental thereto”

  3. Electricity Bill Important definitions in the Bill • Captive generating plant means a power plant set up by any person to generate electricity primarily for his own use and includes a power plant set up by any co-operative society or association of persons for generating electricity primarily for use of members of such co-operative society or association. • Dedicated Transmission Lines means any electric supply line for point to point transmission which are required for the purpose of connecting electric lines or electric plants of a captive generating plant

  4. Electricity Bill Important definitions in the Bill • Generating Company means any company or body corporate or association or body of individuals, whether incorporated or not, or artificial juridical person, which owns or operates or maintains a generating station • Grid means the high voltage backbone system of inter-connected transmission lines, sub-stations and generating plants

  5. Electricity Bill Important definitions in the Bill • Open Access means the non-discriminatory provision for the use of transmission lines or distribution system or associated facilties with such lines or system by any licensee or consumer or a person engaged in generation in accordance with the regulations specified by the Appropriate Commission. • Wheeling means the operation whereby the distribution system and associated facilities of a transmission licensee or a distribution licensee, as the case may be are used by another person for the use of conveyance of electricity on payment of charges to be determined under section 62.

  6. Electricity Bill Important provisions in the Bill • Section 7. No license is required to establish, operate and maintain a generating station subject to compliance with the technical standards relating to connectivity with the grid • Section 8. A hydro-generating station is to submit to CEA for its concurrence, a scheme estimated to involve a capital expenditure exceeding such sum, as may be fixed by the Central Government.

  7. Electricity Bill Important provisions in the Bill Section 9 • A person may construct, maintain or operate a captive generating plant and dedicated transmission lines. • Right to open access is secured for the purposes of carrying electricity from captive generating plant to the destination of use, subject to availability of adequate transmission facility.

  8. Electricity Bill Important provisions in the Bill Tariff Regulations Proviso to Section 61: The terms and conditions for determination of tariff under the following statutes as they stood immediately before the appointed date, shall continue to apply for a period of one year or untill the terms and conditions for tariff are specified, whichever is earlier : • Electricity (Supply) Act, 1948, • Electricity Regulatory Commissions Act, 1998 and • State Electricity Reform Acts

  9. Electricity Bill Important provisions in the Bill • Section 63 Adoption of tariff through transparent process of bidding in accordance with guidelines issued by the Central Government.

  10. Application to Captive generating Plants & IPPs Do Generating Companies require any approvals to set up Generating Stations? • No licence is required for setting up a Generating Station including captive generating plants. • Genco’s are however required to comply with technical standards relating to connectivity with the grid (as specified by CEA) • Genco’s proposing to set up a hydro-generating station involving a capital expenditure exceeding the sum fixed by the Central Government (by notification) require concurrence from CEA

  11. Application to Captive generating Plants & IPPs What is the treatment given to Captive Plants under the Bill? • Any “person” is free to construct, maintain or operate a Captive Generating Plant and dedicated transmission lines Eligible entities are: • co-operative society • association of persons • any company or body corporate • Supply through the grid is to be regulated at par with the generating station of a generating company. • Right to open access for the purposes of carrying electricity from captive generating plant to the destination of use

  12. Application to Captive generating Plants & IPPs What is the treatment given to Captive Plants under the Bill? • Open access” is subject to availability of adequate transmission facility ( to be determined by CTU/STU) . • Surcharge is not leviable in case open access is provided by CTU/STU/Transmission OR Distribution Licensee.

  13. Application to Captive generating Plants & IPPs What duties are cast upon Generating Companies under the Bill? • Generating company is entitled to supply electricity to any licensee • May supply electricity to any consumer as and when open access is permitted under section 42(2) • To submit technical details regarding its generating stations to the Appropriate Commission and the Authority; • Co-ordinate with CTU /STU for transmission of the electricity generated by it.

  14. Application to Captive generating Plants & IPPs What duties are cast upon Generating Companies under the Bill? • In the event of any extraordinary circumstances, the Appropriate Government may • Specify that a generating company shall, operate and maintain any generating station in accordance with the directions of that Government. • Offset the adverse financial impact of its directions on any generating company in such manner as it considers appropriate. • The expression “extraordinary circumstances” means circumstances arising out of threat to security of the State, public order or a natural calamity or such other circumstances arising in public interest.

  15. Application to Captive generating Plants & IPPs Who is empowered to direct installation of meters for Gencos? • The CEA can direct the installation of meters by a Genco at such stages of generation and at such locations for facilitating proper accounting and audit in the generation.

  16. Application to Captive generating Plants & IPPs What is the role and function of Appropriate Commissions with regard to Gencos? • In terms of 79(1), the Central Commission is to regulate the tariff of : • Generating companies owned or controlled by the Central Government; • Generating companies other than those owned or controlled by the Central Government, if such generating companies enter into or otherwise have a composite scheme for generation and sale of electricity in more than one State

  17. Application to Captive generating Plants & IPPs The State Commission is empowered to : • Determine tariff for generation within the State • To be guided by the National Electricity Policy and tariff policy framed by the Central Government • To fix the minimum and maximum ceiling of tariff for sale or purchase of electricity, in pursuance of an agreement, in case of shortage of supply of electricity, for a period not exceeding one year to ensure reasonable prices of electricity • Determine wheeling charges and surcharge

  18. Application to Captive generating Plants & IPPs The State Commission is empowered to : Regulate electricity purchase and procurement process of distribution licensees including • Price at which electricity shall be procured from the generating companies or licensees or • From other sources through agreements for purchase of power for distribution and supply within the State

  19. Application to Captive generating Plants & IPPs The State Commission is empowered to : • Promote cogeneration and generation of electricity from renewable sources of energy • Providing measures for connectivity with the grid and sale of electricity to any person • Specify, if appropriate, for purchase of electricity from such sources, a percentage of the total consumption of electricity in the area of a distribution licence

  20. Application to Captive generating Plants & IPPs Tariff • The price in case of a direct commercial relationship between the consumer and a generating company or a trader are in the discretion of the contracting parties. • The Appropriate Commission does not have any role to play in such tariff making. • Transmission and wheeling charges would be determined by the Appropriate Commission.

  21. Application to Captive generating Plants & IPPs Tariff • Adoption of tariff through transparent process of bidding appears to be a progressive step and would be advantageous for the consumer. • However, the Bill does not provide guidance as to how such bidding process would work in practice.

  22. Application to Captive generating Plants & IPPs Tariff • The Appropriate Commission to promote co-generation and generation of electricity from renewable sources of energy. • Determination of tariff would be done as per regulations and generating companies will have apply for fixation of tariff.

  23. Application to Captive generating Plants & IPPs Tariff • Any excess charge exceeding the tariff as determined shall be recoverable by the person who has paid such charge along with interest equivalent to the bank rate. • The mechanism by which such a provision would be applicable is however not provided in the Bill.

  24. Food for thought • Clear trend evident in the policy framework permitting competition in these activities, which has gradually evolved from monopoly in generation and supply. • The wires business in the monopoly vertically integrated supplier model, other functions, including generation and supply are amenable to existence of multiple players • Open Access is supposed to increase supply and reduce tariff akin to the telecom sector • Open Access would encourage private investors to produce more power and sell directly to consumers • Surcharge on open access would fund existing cross-subsidies • The Open Access rules and regulations requires to be framed so that it becomes clear as to how would such open access provisions apply in practice

  25. Thank you

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