Electricity Act

2003

1
 Introduction

 The Indian Electricity Act, 1910 enacted nearly a century ago

 considered power supply to Urban areas by private
licensees
 addressed many issues related to Power Sector
 It however did not cover integrated development of the
power sector
 The Electricity (Supply) Act, 1948 lead to constitution of
State Electricity Boards to derive the benefits of the
economies of scale and electrification of the rural areas,
uniform tariffs in the state etc.

2
 Introduction

Power Scenario prior to EA2003 Result was –

• Public Service
• Absence of quality of
• Direct Management by Govt.
electricity
• Inconsistency in tariff of electricity
• Uncertainty in profit
• No mechanism to recover SEB’s
• No economic growth
expenditure
• Hardship to consumers
• No incentive for efficiency
mounting losses.
Inefficiencies masked under rigid
structure of SEBs.
Irrational tariff formulation

3
 Electricity Act 2003
• Various amendment to these acts

Electricity Act 2003 passed in Lok Sabha and

Rajya Sabha & after getting the President’s
assent came into effect from 10th June 2003

Act has 18 parts and 185

sections

4
Electricity Act 2003 - Objectives

To consolidate the laws related to

Generation ,Transmission, Distribution, trading & use of
electricity
To take measures suitable for development of electricity
industry
To promote competition
To protect interest of consumers & supply of electricity to
all areas
To ensure transparent policies
To promote efficient and environmentally benign policies
To constitute CEA, Regulatory commissions &
establishment of Appellate Tribunal .
Electricity Act 2003 – Main features
Generation free from licensing
Captive generation free from control
Re-structuring of State Electricity Boards
Mandatory establishment of Regulatory Commissions
Open access in transmission
Open access in distribution to be allowed by State
Regulators in phased manner
Stringent provisions for violation of grid discipline & theft
of power
Supply of electricity to all areas
Rationalization of electricity tariff
 Coverage

Part I : Definitions Part X :Regulatory Commissions

Part II: National Electricity Policy & Plan Part XI: Appellate Tribunal For Electricity

Part III: Generation of Electricity Part XII: Investigation & Enforcement

Part IV: Licensing Part XIII : Reorganisation of Boards

Part V: Transmission of Electricity Part XIV: Offences & Penalties

Part VI: Distribution of Electricity Part XV: Special Courts

Part VII: Tariff Part XVI: Dispute Resolution

Part VIII: Works Part XVII: Other Provision

Part IX: Central Electricity Authority Part XVIII: Miscelleneous

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 Generation of Electricity

Any generating company may establish, operate and

maintain a generating station without obtaining a

license under this Act if it complies with the technical

standards relating to connectivity with the grid.

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 Duties of Generating Company

1. To establish, operate and maintain generating stations, tie-

lines, sub-stations and dedicated transmission lines
connected therewith
2. Supply electricity to any licensee or to any consumer.
3. To submit technical details regarding its generating stations
to the Appropriate Commission and the Authority;
4. To co-ordinate with the Central Transmission Utility or the
State Transmission Utility, as the case may be, for
transmission of the electricity generated by it.

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 Functions of RLDC

1. Optimum scheduling and dispatch of electricity within the region,

as per the contracts between the licensees or the generating
companies with in the region
2. Monitor grid operations;
3. Keep accounts of the quantity of electricity transmitted through
the regional grid;
4. Supervise and control the inter-State transmission system
5. Carry out real time operations for grid control and dispatch of
electricity within the region
6. Secure and economic operation of the regional grid as per the Grid
Standards and the Grid Code.
7. Levy and collect fee and charges from the generating companies or
licensees engaged in inter-State transmission of electricity

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8. Supervision and control for stability of grid operations and
maximum economy and efficiency in the operation of the power
system in the region under its control.
9. Every licensee, generating company, generating station,
substation and any other person connected with the operation of
the power system shall comply with the direction issued by the
Regional Load Despatch Centres
10. All directions by the Regional Load Despatch Centres to any State
licensee, State generating company shall be issued through the
State Load Despatch Centre and the State Load Despatch Centres
shall ensure that such directions are duly complied with by the
licensee or generating company
11. If any licensee, generating company or any other person fails to
comply with the directions issued RLDC, he shall be liable to
penalty not exceeding rupees fifteen lacs.

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 TARIFF

61. The Appropriate Commission shall specify the regulations for the

determination of tariff, and shall be guided by -

(a) principles & methodologies specified by Central Commission for
determination of tariff;
(b) generation, transmission, distribution and supply of electricity are
conducted on commercial principles;
(c) the factors which would encourage competition, efficiency, economical
use of the resources, good performance and optimum investments;
(d) safeguarding of consumers' interest and at the same time recovery of the
cost of electricity in a reasonable manner;
(e) the principles rewarding efficiency in performance;
(f) multi year tariff principles;(g) 12
 CENTRAL ELECTRICITY AUTHORITY

The Authority shall consist of max. 14 Members (including its Chairperson) of

whom max 8 shall be full-time Members to be appointed by the Central Govt.
The head quarters of the Authority shall be at Delhi
Functions and duties of Authority:
1. Advise the Central Government on national electricity policy
2. Specify the technical standards for construction of electrical plants, electric
lines and connectivity to the grid;
3. Specify the safety requirements for construction, operation and
maintenance of electrical plants and electric lines
4. Specify the conditions for installation of meters for transmission and supply
of electricity;
5. Advise Appropriate Govt. and the Appropriate Commission on all technical
matters relating to generation, transmission and distribution of electricity
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 REGULATORY COMMISSIONS

Central Commission (CERC) State Commission (SERC)

Chairperson & members appointed by Chairperson & members appointed by
Central Govt. State Govt
Persons having adequate knowledge of
engineering, law, economics, commerce,
finance or management

Functions :
1. To determine tariff
2. To issue licenses for transmission and
electricity trader.
3. To adjudicate upon disputes
4. To specify Grid Code having regard to
Grid Standards;
5. Continuity and reliability of service by
licensees.
6. To fix the trading margin in the inter-
State trading of electricity
7. ensure transparency while exercising its
powers and discharging its functions.

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 REGULATORY COMMISSIONS

Legal Status
1. The Appropriate Commission shall have the same powers as are
vested in a civil court under the Code of Civil Procedure, 1908
2. All proceedings before the Appropriate Commission shall be
deemed to be judicial proceedings within the meaning of sections
193 and 228 of the Indian Penal Code
3. Appropriate Commission shall be deemed to be a civil court for
the purposes of sections 345 and 346 of the Code of Criminal
Procedure, 1973.

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 APPELLATE TRIBUNAL FOR ELECTRICITY

• Established by Central Govt.

• Chairperson of the Appellate Tribunal shall be appointed by the Central
Government after consultation with the Chief Justice of India.
• The Members of the Appellate Tribunal shall be appointed by the Central
Government
• Any person aggrieved by an order of the Appropriate Commission under
this Act may prefer an appeal to the Appellate Tribunal for Electricity within
a period of forty-five days from the date of the order:
• Appellate Tribunal shall dispose of the appeal finally within one hundred
and eighty days from the date of receipt of the appeal:
• The Appellate Tribunal shall consist of a Chairperson and three Members.
• Chairperson of the Appellate Tribunal, is, or has been, a judge of the
Supreme Court or the Chief Justice of a High Court
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 Appellate Tribunal

• The Appellate Tribunal shall not be bound by the procedure

of the Code of Civil Procedure, 1908, but shall be guided by
the principles of natural justice
• Appellate Tribunal shall have powers to regulate its own
procedure
• An order made by the Appellate Tribunal under this Act shall
be executable by the Appellate Tribunal as a decree of civil
court and the Appellate Tribunal shall have all the powers of a
civil court.

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 Appeal to the Supreme Court

Any person aggrieved by any decision or order of the Appellate

Tribunal, may, file an appeal to the Supreme Court within sixty

days from the date of communication of the decision or order of

the Appellate Tribunal, to him, on any one or more of the grounds

specified in section 100 of the Code of Civil Procedure,1908

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ARR,MYT, Provisions in Tariff
Regulations, Benchmarks, Trajectories
and Tariff determination process

19
Revenue
Revenue= Selling Price x Quantity Sold

Revenue for a generating company may be

= Tariff x energy sold

20
ARR
Aggregate Revenue Requirement
means the requirement of the Licensee
for recovery, through tariffs, of
allowable expenses and return on
capital pertaining to his Licensed
Business, in accordance with these
Regulations;
21
Control Period
It means a period comprising one or more
financial years, as may be stipulated by the
Commission, for submission of forecast in
accordance with Part C of these
Regulations;

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Annual Review of Performance

17.1 Where the aggregate revenue requirement and

expected revenue from tariff and charges of a
Generating Company or Licensee is covered under a
multi-year tariff framework, then such Generating
Company or Licensee, as the case may be, shall be
subject to an annual performance review during the
control period in accordance with this regulation.

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Time line for filing of petition
Actual Data to be
data up to Draft petition
sent to to be finalised
30th Sept Last date for
regulatory for approval
is to be submission of
cell for of
given to ARR/APR
ARR/ APR management
MERC

20 days 20 days 20 days

60 days

20th 30th
30rd 10th
Oct Nov
Sept Nov

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Process of filing ARR / APR
Data Requirement for Tariff determination and ARR of Next Year

30th 1st 31st

1st 1st
Sept April Mar
April April
09 10 10 11 12

1 year 6 months 6 months 1 year

(Actual) (Actual) (Estimated) (Projections)

Previous year Current year Next year

Process of filing ARR / APR
Receipt of
COMPLETE
application
i.e.
Technical Acceptance of Comments Public
validation ARR/APR from public Hearing
Last date for
submission of Reply to Public Reply to Issuance of
ARR/APR data gaps notice Comments order

3days
120 days
30th This period is
Nov to be reduced Copies of
so that tariff complete ARR to
order shall be be kept ready for
issued in time sale at every
location
by MERC
mentioned in the
Notice
APR
 Tariff Structure for
Generation as per MERC.
Tariff
A method of charging for the supply
of services, especially public
services, such as gas/ electricity.
 MERC Tariff Regulations 2005
• Notified on August 23, 2005

• Guided by Section 61 to 66 of EA-2003

• Separate regulations for G,T & D (Wire & Retail)

• Part B of Regulation: Procedure for determination of

tariff

• Part C of Regulation: Multi Year Tariff principles

• First Control Period : FY07-08 to FY09-10

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 Type of Tariff

Two part tariff :

1) Fixed Charge/ Capacity Charge &

2) Energy Charge/ Variable Charge/ Fuel Charge

 Elements of Tariff
28.3 The annual fixed charges of a thermal generating station or of
a hydro power generating station, as the case may be, shall
consist of recovery of the following:
(a) Return on equity capital;
(b) Income-tax;
(c) Interest on loan capital;
(d) Depreciation, including Advance Against Depreciation,
and amortization of intangible assets;
(e) Operation and maintenance expenses; and
(f) Interest on working capital.

28.4 The energy charges, in case of thermal generating station,

shall cover fuel cost and shall be computed as specified in
Regulation 35.1
 Components of variable charge
• Fuel cost
• Lubricants
• Chemicals
• Water charges
• Other fuel related expenses:
• Coal / oil handling contract charges
• Demurrages on coal / oil wagons
• Siding charges
• Penalties for overloading
• Commission to agents
• Payments to railway staff posted at TPS
• Coal stock maintenance cost
• Other coal related cost
• Stock shortages on physical verification of coal / oil stock
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 Norms & Normative parameters
 MERC (Terms & conditions of tariff) regulation 2005

Norms are the standards which are to be followed during process of

business.

 Normative parameters are the standard values of different parameters

which are to be achieved for efficient working.

For generation business, parameters like Station Heat rate, Auxiliary

Consumption, Sp. Oil Consumption, Availability, Plant Load Factor,

Transit Loss have been assigned normative values.

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 Component of Fixed Charges
34.1 Return on Equity (RoE)

Return on equity capital shall be computed on the equity capital determined in

accordance with Regulation 31 at the rate of 14 per cent per annum in Indian
Rupee terms.

34.2 Income-tax

34.2.1 Income-tax on the income of the Generating Business of the Generating

Company shall be allowed for inclusion in the annual fixed charges.

34.3 Interest on loan capital

34.3.2 Interest on normative loan capital, calculated under Regulation 31.2,

Regulation 31.3 and Regulation 31.4 above shall be allowed, based on approved
interest rate and the normative repayment schedule in accordance with
Regulation 32 above:
 Component of Fixed Charges
34.4.1 Depreciation
(i) The value base for the purpose of depreciation shall be the original cost
of the asset as approved by the Commission
(ii) Depreciation shall be calculated annually, based on straight line
method at the rates provided inthe Regulation:
Provided that the residual life of the asset shall be considered as 10 per
cent and depreciation shall be allowed up to maximum of 90 per cent of
the original cost of the asset. Provided further that land is not a
depreciable asset and its cost shall be excluded from the original cost for
the purpose of calculation of depreciation:
34.5 Interest on Working Capital
(a) In case of Coal based generating stations, working capital shall cover:
(i) Cost of coal for one and a half months for pit-head and two months for
non-pit-head generating stations, corresponding to target availability;
(ii) Cost of secondary fuel oil for two months corresponding to target
availability;
(iii) Operation and Maintenance expenses for one month;
Operation and Maintenance Expenses
(a) O&M expenses including insurance shall be derived on the basis of
the average of the actual expenses for the five (5) years, based on the
audited financial statements, excluding abnormal operation and
maintenance expenses, if any, subject to prudence check by the
Commission.
(b) The average of such operation and maintenance expenses shall be
considered as expenses for the 3rd year ended March 31, and shall
be escalated at the rate of 4 per cent per annum to arrive at operation
and maintenance expenses for the base year
(c) The base operation and maintenance expenses for each subsequent
year shall be escalated at the rate of 4 per cent per annum to arrive at
permissible operation and maintenance expenses for such financial
year.
 Operation and Maintenance Expenses
34.6 Operation and Maintenance Expenses
34.6.2 New generating stations
(a) Thermal generating stations
(i) Coal-based generating stations
200/210/250 MW sets : Rs. 10.82 lakh/MW
500 MW and above sets : Rs. 9.73 lakh/MW
For the generating stations having combination of 200/210/250 MW sets and
500 MW and above set, the weighted average value for operation and
maintenance expenses shall be adopted.
(ii) Gas Turbine/Combined Cycle generating stations other than small gas
turbine power generating stations
With warranty spares of 10 years : Rs. 5.41 lakh/MW
Without warranty spares : Rs. 8.11 lakh/MW
Break up of ARR
1% 1% 0% 0%
2%
3% Fuel
4%
O&M
5%
ROE

Depr

11% other vari.charge

IOWC

Lease

IT
71%
Int.on LT loan

other Fin. Charge

38
Variable Cost component & Criteria Recover
The Approved Fuel cost is the Fuel cost for the Normative Gross generation
yielding actual net generation at Approved Aux Con. , at Approved HR &
Sp. Oil Consumption at prevalent fuel prices and allowing transit Loss at
approved rate.

Components of Actual Fuel Cost:

1.Cost of Coal / Gas consumed for gross generation.
2.Cost of Secondary oil consumed for gross generation.
3.Cost of coal transit loss.

Performance parameters for approval of Actual fuel cost :

1. Transit Loss (% of Total Coal Purchases)— For Thermal
2. Specific Oil Consumption (ml/kwh) )— For Thermal
3. Station Heat rate (kcal/kwh) )— For Gas +Thermal
4. Auxillary Consumption (% of Gross Generation) )— For Thermal +Gas
 Allowance in Tariff

RoE Normative
Income Tax Actual
interest on Loan Capital Actual
Depreciation & AAD Actual
O&M Expenses Normative
Interst on Working Capital Normative
Price of Fuel Actual
Quantity of Fuel
Transit Loss Normative
Heat Rate Normative
Secondary Fuel Consp. Normative
Auxilliary Consumption Normative
MERC NORMS
Aux Power Consumption (%)
Auxiliary Consumption” in relation to a period,
means the quantum of energy consumed by auxiliary
equipment of the generating station and shall be
expressed as a percentage of the sum of gross energy
generated at the generator terminals of all the units of
the generating station.

As per MERC norms, Target Aux power consumption

MERC Order for MSPGCL for APR_09-10_FY 2010-11.pdf

Page -84
Availability Factor for a period (%)

Average declared capacity (MW) x 100

= ----------------------------------------------------
Installed capacity - Normative Aux.Cons (MW)

Where,
Declared capacity : Ex-bus capacity declared, after
accounting for fuel availability , quality & plant
constraints
Example
Norms of Availability factor
• As per MERC order, target availability for full recovery
of fixed charges shall be
(page 70)
• If it is less, then fixed charges shall be recoverable on
prorata basis.
Plant Load Factor for a period (%)

Average Scheduled generation (MW) x 100

= --------------------------------------------------------
Installed capacity - Normative Aux.Cons (MW)

Where,
“Scheduled Generation” for any time block means
the schedule of generation in MW ex-bus given by
the State Load Despatch Centre
Example
Incentive is applicable @ Rs. 0.25/kWh for
generation above 80% PLF
Sp.Oil Consumption (ml/kwh)
Specific fuel oil consumption means the fuel oil
consumed in ml to generate one kWh of electrical
energy at generator terminals.

As per MERC norms, Target Sp.oil consn for the year

2010-11

Page 87
Gross Heat Rate (Kcal/kwh)
Gross Station Heat Rate means the heat energy input
in kcal required to generate one kWh of electrical
energy at generator terminals.

= (Coal consumption X Calorific value of coal) +

(Oil consumption X Calorific value of oil)
----------------------------------------------------------
Gross Generation

As per MERC norms, Target Heat Rate for 2010-11

Page 85
Case Study (KTPS performance 2011-12)
S Particulars Unit Value
N
1 Installed Capacity MW 620
2 Gross Generation Mus 3359.849
3 Aux Power Consumption Mus 408.303
4 Average OLC declared MW 363.8
5 Average Load Schedule MW 362.98
6 Fuel oil consumption KL 19292.7
7 Coal consumption MT 2888707
8 CV of coal Kcal/kg 3245
9 CV of oil Kcal/litre 9500
10 Cost of coal Rs/MT 2300
11 Cost of oil Rs/KL 42000
48
 MAHAGENCO PERF / MERC norms
Thermal Capacity : 6480 MW
Target /
Parameter Actual
Norms
Gross Generation (Mus) - 37022

Availability factor (%) 80.00 66.89

Heat Rate (Kcal/kwh) 2655 2702

Sp.oil Consumption (ml/kwh) 2.00 4.19

Aux.Power Consumption (%) 9.81 10.52

Fixed Charges per year (Rs.Crore) 1987

 MERC norms
Parameter Target /
Norms
Availability factor (%) 80.00
Heat Rate (Kcal/kwh) 2965
Sp.oil Consumption (ml/kwh) 2.00
Aux.Power Consumption (%) 10.7 %
Fixed Charges per year (Rs.Crore) 309

Regulatory & Commercial Dept.

THANK YOU

Regulatory & Commercial Dept.