1 INTRODUCTION Power sector across the world is undergoing a lot of restructuring; India is no exception to this.

The whole of the power industry in India is undergoing a state of flux. The need for restructuring the power sector was felt due to the scarcity of financial resources available with Central and State Governments, and necessity of improving the technical and commercial efficiency. In some States of India there are multiple private utilities, which are technically and financially in a position to enter the phase of a competitive electricity market. . It is shown that for developing countries, the main objectives of power
system deregulation are to attract various investments to power industry in order to meet the fast growth of electric demand caused by blooming economy and in the meantime to reduce government commitment and functions in power industry. Only this way, the power industry, as a significant infrastructure, can realize sustainable development at high efficiency. It is also shown that in the market environment, how to realize optimal system planning and reliable operation at acceptable electricity prices with qualifies service and how to transit to the market environment smoothly at lowest costs and lowest risks should be considered thoroughly.

Hence, in 1998 the Regulatory Commissions were formed under the Electricity Regulatory Commissions Act 1998 (Central Law) to promote competition, efficiency and economy in the activities of the electricity industry. Central Electricity Regulatory Commission (CERC) [1] has a key role in rationalizing tariff of generating companies owned or controlled by the Central Government. Ministry of Power [2] has undertaken Accelerated Power Development and Reform Programme (APDRP) from the year 2000-01 with the twin objectives of financial turn-around in the performance of the power sector especially in electric distribution and improvement in quality of supply. Electricity Act 2003 has come into force from June 2003. As the act allows third party sales, it introduces the concept of trading bulk electricity. The act also provides open access to transmission as well as distribution of electricity. 2 PROPOSED MODEL FOR RESTRUCTURING IN INDIA [3] In many parts of the world wherever unbundling, i.e. separation of generation, transmission and distribution has taken place, the two models are more prevalent for

system operation. The first one is Independent System Operator (ISO) model and the other is Transmission System Operator (TSO) model. In ISO model, transmission companies are also permitted to own, manage and control generation and distribution companies, an independent system operator is created to facilitate open access and competitive markets. In TSO model, operation of the grid and ownership of the grid are integrated in a single entity, which is responsible for development of transmission system and to provide non-discriminatory open access to all eligible market participants. the necessities in a deregulated power market can be summarized below: - Non-discriminatory open access to transmission network is a pre-requisite for ensuring competition in wholesale power trading. - The system operation functions at the national level can be handled by central transmission utility while state transmission utilities can manage State Load Despatch Centres (SLDCs) similar to TSO concept. - The regional electricity boards will have the responsibility of managing the power exchanges while the Regional Load Despatch Centres (RLDCs) will manage the overall integrated operation of power system like outage planning, relay co-ordination, islanding schemes, etc.

Electricity Regulation
The Electricity Act, 2003
Background and salient features of the Act :
Power is today a basic human need. It is the critical infrastructure on which modern economic activity is fully dependent. Only 55% households in India have access to electricity.

Most of those who have access do not get uninterrupted reliable supply. The industry in India has among the highest tariffs in the world and is not assured of the quality of supply. In this era of globalisation, it is essential that electricity of good quality is provided at reasonable rates for economic activity so that competitiveness increases.Being internationally competitive is now essential for achieving the vision of 8 % GDP growth per annum, employment generation and poverty alleviation. In recent years the financial health of SEBs has been deteriorating. There is a big gap between unit cost of supply and revenue and the annual losses of SEBs have been increasing and have reached unsustainable levels (over Rs. 33,000 crores). In the last two Plan periods, barely half of the capacity addition planned was achieved. The optimistic expectations from the IPPs have not been fulfilled and in retrospect it a ppears that the approach of inviting investments on the basis of government guarantees was perhaps not the best way. The energy as well as peaking shortages across the country is a matter of concern and the situation would have been worse but for the slowdown in manufacturing sector. The Honble Prime Minister and Chief Ministers have set before the nation the goal of electrifying all our villages by 2007 and all our households by 2012. Access is yet to be provided to about 80,000 villages. Uninterrupted and reliable supply of electricity for 24 hours a day needs to become a reality for the whole country including rural areas. Enough generating capacity need to be created to outgrow the situation of energy and peaking shortages and make the country free of power cuts with some spare generating capacity so that the system is also reliable. The sector is to be made financially healthy so that the state government finances are not burdened by the losses of this sector. The sector should be able to attract funds from the capital markets without gov ernment support. The consumer is paramount and he should be served well with good quality electricity at reasonable rates. It is in this context that the Electricity Act, 2003 seeks to bring about a qualitative transformation of the electricity sector through a new paradigm. The Act seeks to create liberal framework of development for the power sector by distancing Government from regulation. It replaces the three existing legislations, namely, Indian Electricity Act, 1910, the Electricity (Supply) Act, 1948 and the Electricity Regulatory Commissions Act, 1998. The objectives of the Act are to consolidate the laws relating to generation, trans mission, distribution, trading and use of electricity and generally for taking measures con ducive to development of electricity industry, promoting competition therein, protecting i nterest of consumers and supply of electricity to all areas, rationalization of electricity ta riff, ensuring transparent policies regarding subsidies, promotion of efficient and environ mentally benign policies, constitution of Central Electricity Authority, Regulatory Commissions and establishment of Appellate Tribunal and for matters connected therewith or incidental thereto. The Act strikes a balance which takes into account the complex ground realities of the power sector in India with its intractable problems.

The salient features of the Act are:

1. Generation has been delicensed and captive generation freely permitted.i.e. Any generating company may establish, operate and maintain a generating station without obtaining a licence under this Act with only exception that it should comply with the technical standards relating to connectivity with the grid referred to in clause (b) of section 73. Note: Hydro-projects would however need concurrence from Central Electricity Authority

2. No person shall (a)transmit electricity; or (b)distribute electricity; or (c)undertake trading in electricity, unless he is authorised to do so by a licence issued, exceptions informed by authorised commissions through notifications 3. No license required for generation and distribution in rural India 4. Central Government may, make region- wise demarcation of the country, and, from time to time, make such modifications therein as it may consider necessary for the efficient, economical and integrated transmission and supply of electricity, and in particular to facilitate voluntary interconnections and co-ordination of facilities for the inter-State, regional and inter-regional generation and transmission of electricity. Transmission utility at the central and state level to be a government company-with responsibility of planned and coordinated development of transmission network 5. Open access in transmission with provision for surcharge for taking care of current level of cross subsidy, with the surcharge being gradually phased out. 6. The state government required to unbuldle State Electricity boards. However they may continue with them as distribution licensees and state transmisison utilities 7. Setting up state electricity regulatory commission (SERC) made mandatory 8. An appellate tribunal to hear appeals against the decision of (CERCs) and SERCs 9. Metering of electricity supplied made mandatory 10. Provisions related to thefts of electricity made more stringent 11. Trading as, a distinct activity recognised with the safeguard of Regulatory commissions being authorised to fix ceiling on trading margins 12. For rural and remote areas stand alone system for generation and distribution permitted 13. Thrust to complete rural electrification and provide for management of rural distribution by panchayat, cooporative societies, NGOs, franchises etc. 14. Central government to prepare National Electricity Policy and tariff Policy 15. Central electricity authority to prepare National electricity plan.

The Electricity (Amendment) Bill, 2005

The Electricity (Amendment) Bill, 2005 was introduced in the Lok Sabha on December 23,2005 to amend the Electricity Act, 2003. The Bill was referred to the Parliamentary Standing Committee on Energy (Chairperson: Shri Gurudas Kamat), which was scheduled to submit its report on March 23, 2006. The Bill proposes to amend the Act by deleting the provision for elimination of cross subsidies. It , however, retains the provision for reduction of cross subsidies. The provision was deleted taking into concern the fact that it might not be possible to eliminate cross subsidies in the near future. The Bill seeks to provide that both the Central Government and State Government would jointly attempt to supply electricity to all areas including villages and hamlets through rural electricity infrastructure and electrification of households. In the Act, the onus of rural electrification was solely on the State Government. The offences relating to theft of electricity, electric lines, and interference with meters are cognizable offences. There was concern that the Act stood as a barrier to investigation of these offences by the police. The Bill seeks to amend the section in the following manner: It emphasizes that a person cannot be prosecuted for any offence punishable under the Act without the permission of the Central Government or Appropriate Commission or a Chief Electrical Inspector

or an Electrical Inspector or licensee or the generating company. An Appropriate Commission could be the Central Regulatory Commission or State Regulatory Commission or Joint Commission. It clarifies that the police have the power to investigate cognizable offences under the Act. In order to facilitate speedy trials, it provides that a Special Court (the state government can constitute any number of Special Courts for such areas as may be specified, to facilitate speedy trials of offences) shall be competent to take cognizance of an offence without the accused being committed to it for trial.

The possible tariff for transmission services can be divided into three parts. The proposed components reflecting the cost of various activities will be: Use of network charges This will reflect costs of capital investments and the maintenance and operation of a transmission system to transfer bulk power to and from different locations. The use of network charges would be worked out on distance slabs to reflect the distance traveled by the energy transmitted. System operation charges This is meant for accommodating the costs associated with operating the LDC. The costs of owning and maintaining the LDC should be included. The system operation charges shall be charged to the users based on total transacted energy. Reactive power charges This is a variable charge depending upon the voltage related drawl of reactive power. Reactive power drawl by beneficiaries is to be priced as per the voltage level of the system i.e. beneficiary pays for reactive power drawl when voltage at the metering point is below 97 % and beneficiary gets paid when the voltage is above 103 .% 4 OPEN ACCESS Before the enactment of the Electricity Act 2003 (hereinafter referred to as the Act), the legal framework did not offer any choice to the distribution companies and the consumers in the selection of suppliers of electricity. The Act has enabled the distribution companies and the consumers to have choice in the matter of supplies of electricity. Similarly, the generator also has choice to select among the distribution companies. The Act specifies the provisions for non-discriminatory use of transmission lines or distribution system or

associated facilities with such lines or system by any licensee or consumer or a person engaged in generation. This is termed as open access. The Commission has categorized the open access customers into two broad categories: (i) Short Term Customers, who intend to avail of transmission service up to one year and (ii) Long Term Customers, who intend to avail of the transmission access for 5 years or more. Allotment priority of long term open access customers shall be higher than the short term customers. The Commission has also ordered that the nodal agency for long term access shall be the Central Transmission Utility (CTU), which is POWERGRID at present. The nodal agency for short term access shall be the RLDC of the region in which the point of drawal is located.