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The Government of Gujarat has set up a high power committee to review financial viability related issues faced by a few thermal power projects in the state. As per the terms of reference issued by the government, the committee is expected to review and establish financial hardship, if any, faced by the concerned projects, especially in light of promulgation of the Indonesian regulation dated September 2010. The committee is also required to undertake stakeholder consultation for this purpose and in this regard it had requested Prayas (Energy Group) to submit its comments and suggestions. This attached submission is in response to such a request of the committee.

Prayas (Energy Group) has been a party to the various proceedings before the different fora in matters concerning some of the projects being reviewed by the present committee. Past submissions by Prayas (Energy Group) in the proceedings before the CERC and the Appellate Tribunal for Electricity (ATE) have made certain suggestions for addressing hardship on account of increase in the price of imported coal. The same are attached as annexures. The present submission is in line with these suggestions.

The submission argues that any solution should adhere to certain basic principles such as, safeguarding sanctity of contracts, ensuring fair and equitable burden sharing between all stakeholders, and that relief, if any, should only be prospective in nature. Additionally, any solution in this regard should only be applicable to projects that are mandated to use imported coal as the primary source of fuel. Keeping in mind the various technical, legal and regulatory issues involved in these matters, it is absolutely essential to undertake due public process before arriving at any decision in this regard. 

Based on these principles, the approach suggested by PEG consists of the following measures:

  • Ensuring that the procurers continue to get supply of power up to 80% PLF / availability as per the PPA tariff and other terms and condition.
  • The procurers forgo their first right of refusal on any additional / optional generation beyond the normative availability of 80%. In lieu of this, the PPA term should be extended by 15 years at tariff as per PPA’s last year capacity charge and variable charge to be determined by regulatory commission subject to prudence. This will ensure that procurers get benefit of low fixed charge generation capacity beyond existing term of the PPA.
  • The developers are allowed to sell the additional generation beyond the normative availability at market rates to offset hardship, if any. The developers also forgo return on equity depending on prevailing coal price and rate of sale of additional power.
  • The lenders agree to restructure loans and/or take the necessary haircut to ensure that project can sustain operations and debt repayment within the revenue that can be generated based on the above measures.

The suggested approach will ensure due accountability of project developers and lenders, while preventing the projects from turning into non-performing assets.

 

 
The National Tariff Policy was amended on 20th January 2016 to account for emerging changes in the sector. The Ministry of Power, seeking to introduce further amendments published draft amendments on 30th May 2018. The proposed amendments have several suggestions to account for the flux in the sector and to direction of reforms being contemplated by the Ministry of Power. 
The current draft of the National Tariff Policy amendment has suggestions for many progressive and much needed provisions with regards to information on open access, simplification of tariff categories, and introduction of framework for tariff determination for electric mobility and setting guiding trajectories for AT&C loss reduction. 
However, there is lack of clarity in many suggested amendments which could create legal and procedural issues in the future. It is suggested that the Ministry of Power release a statement of reasons or a clarificatory document to ensure informed deliberation. 
Many of the amendments seem to be indicating a policy direction which is not keeping with emerging trends and inevitable changes before the sector and may not lead to most efficient outcomes with respect to ensuring the financial viability of DISCOMs. In this context, PEG submissions on provisions related to generation, performance accountability, tariff design, subsidy mechanisms, pre-paid metering, introduction of Direct Benefit Transfer, open access and captive sales migration, tariff rationalisation, accountability of supply and service quality, power procurement and capacity addition planning, renewable energy are detailed in the submission attached below.

The Ministry of Power issued letter No. 23/23/2005-R&R(Vol-IV) dated 22nd  May, 2018 seeking comments and suggestions on the draft amendment in the provisions relating to captive generation plants in the Electricity Rules, 2005.  With the proliferation of captive power plants, increase in group captive and renewable energy captive options, the proposed amendments, come at an opportune time to address emerging trends, lack of operational clarity on certain issues and to introduce measures to encourage serious long-term investment in captive options in India. However, there are some issues where more clarity and more detailed processes would be useful to prevent policy and implementation issues and ensure efficient and periodic monitoring of this sector. In this context, some of the comments and suggestions are given in Prayas (Energy Group)'s submission. The draft amendments as well as PEG submission is available below.

Electricity distribution sector is at a cross-road, with rising cost of supply, emergence of competitive renewable supply options, loss of cross-subsidising sales, and sustained high-cost base-load surplus. At the same time, the age old challenges of high transmission and distribution losses, poor quality of supply and service, and burgeoning financial losses persist. This implies that there will be significant demand uncertainty for distribution companies, making power purchase planning more complex and riskier. Also, the traditional model of cross-subsidy based tariff design is unsustainable.

Unless guided by conscious policy decisions, these changes will unfold chaotically, leaving the distribution companies stranded with excess capacity and huge losses—and the sufferers of such a fallout will be mostly small and rural consumers with serious implications for state level politics. To avoid such consequences, it is extremely important to intervene at the earliest. The impending changes can be turned into opportunities only if distribution companies, regulators, and policymakers begin acting at the earliest. This discussion paper suggests an approach and some concrete measures to enable a smoother transition for the sector and especially, for the small consumers.

A lot of information is provided by utilities during the tariff determination process which aids decision making. In fact, tariff orders and petitions are among the few comprehensive, regularly updated sources of information on the state power sector, especially for distribution companies (DISCOMs). Information provided here helps various consumer groups, researchers, civil society organisations, central and state governments, banks, and investors gain crucial insights on issues that affect the sector.

However, a substantial amount of crucial information is not captured in tariff orders and petitions. This is particularly true for emerging trends such as the recent increase in surplus power, sales migration of cross-subsiding consumers, rapid progress under various electrification schemes and increased procurement of renewable energy. Additionally, data on the extent of the short-term liabilities of DISCOMs and information on coal quality, availability and transportation costs is also not available in many states.

This report documents information formats available across states for crucial cost and performance parameters and suggests formats for providing vital information necessary for decision making. These formats can be easily adapted by SERCs for the upcoming tariff process. Further, they can be used to ensure uniform processes for collection and regular reporting of information across states. This can aid inter-state comparisons and also enable agile and appropriate policy responses.

The report is available  in the link below. All the formats suggested in the report are reproduced in the spreadsheet below.

Distribution Companies in Andhra Pradesh, APEPCL and APSPDCL have filed petitions before the APERC for determination of Aggregate Revenue Requirement and tariffs for the year 2018-19. APERC, conducted public hearings  across the state as part of the tariff determination process and PEG submitted some comments and suggestions during the public hearing in Hyderabad. The presentation made at the hearing is available below.

The submission has taken a medium term perspective on the DISCOM operation and finances in order to highlight the infeasibility of sustaining current trends. The DISCOMs in their petitions have not asked for any tariff increase for the year 2018-19. However, they are also projecting a revenue gap of almost Rs.8000 crores, some of which might be met by state government subsidies. PEG has also highlighted the likelihood of the projected revenue gap being higher than that estimated by the DISCOMs which could also increase the burden of carrying cost. In its submission PEG has noted that there is possibility of underestimation of certain cost components and overestimation of some revenue heads.

Using Revenue and Tariff Analysis for Electric Utilities or RATE model, PEG has projected order of magnitude impacts for 2021-22 based on current trends. Even with current trends, costs increase significantly for the DISCOM and the increase is much more if 50% of the HT sales moves to open access or captive options or if 10 GW of RE capacity is added by 2022. Assuming a modest annual tariff increase of 1.7%, the cumulative revenue gap along with carrying cost for the two DISCOMs is estimated to be in the range of Rs.22,000 crores to Rs. 38,000 crores by 2021-22. In order to meet increasing costs, the tariffs need to increase at the rate of 10% to 19% per year. Alternatively, subsidies need to increase to meet the annual revenue gap such that the annual subsidy payment by 2021-22 is Rs.8,900 crores to Rs.13,600 crores.

The model results indicate that the current model is not sustainable for the state government or the power sector, and may lead to serious political and/or governance issues. Given the increasing cost competitiveness of alternate supply options, more and more cross subsiding consumers will migrate to open access, captive and rooftop solar options. At the same time, the average cost of supply for DISCOMs continues to increase.

The commission needs to take a comprehensive view of the impact of these changes on the sector and determine a transition plan for the DISCOM business model which addresses issue of the reducing room for cross subsidies, increasing demand uncertainty and the need to move away from long term RTC contracts. It is hoped that the commission takes cognizance of these issues and uses the upcoming MYT process as an opportunity to initiate a consultative transition plan for the sector.

Tata Power (Distribution) has filed a petition with the MERC for approval of additional surcharge from 2016-17 onward.

The Additional Surcharge is a mechanism to compensate utilities for the fixed cost of their long-term contracted capacity, which is stranded as a result of consumers moving to Open Access (OA). Prayas (Energy Group) presented at the public hearing held on December 14, 2017 in Mumbai and submitted that TPC-D's petition was not legally maintainable. In addition, the regulations do not allow for restrospective application of Additional Surcharge and all of TPC-D's existing power purchase agreements are about to expire in March 2018, providing an opportunity to the MERC and TPC-D to plan future power procurement in a manner that results in no stranded capacity. Hence, even going forward there is no case for applying additional surcharge.

Both the presentation and the submission made by PEG can be downloaded using the links below.

The implementation of fuel surcharges has been strongly advocated by the Union Government as a measure to alleviate the financial predicament of DISCOMs. In this context, the report studies the various processes, methodologies, and practices across states to determine, levy, and recover fuel surcharges.

Fuel surcharges which are typically levied on a monthly basis and revised every quarter enable timely recovery of costs incurred over and above approved tariffs. Therefore, they ease the working capital woes of the DISCOM. This, in turn, also reduces the burden of carrying cost on consumers.

As the impact on consumers can be significant, any process for its determination and levy should ensure transparency, accountability, and public participation. Considering this, the report covers developments in Assam, Andhra Pradesh, Bihar, Chhattisgarh, Gujarat, Haryana, Himachal Pradesh, Karnataka, Kerala, Madhya Pradesh, Maharashtra, Punjab, Rajasthan, Uttar Pradesh and West Bengal.

This report highlights common trends and draws lessons for a national framework for implementation of fuel surcharges. Such a framework can ensure timely recovery of prudent costs for DISCOMs while being acceptable to consumers.

On 6th October 2017, the Maharashtra Electricity Regulatory Commission (MERC) vide its order in case no 135 of 2017 allowed the Maharashtra State Electricity Distribution Company Ltd (MSEDCL) to procure around 1000 MW of short-term power at higher cost than the ceiling rate of Rs. 4 per unit that the commission had set for such procurement about a year ago. The reason for this was that MSEDCL claimed that around 6600 MW of its contracted capacity was unavailable due to coal shortage. As a result of this, MSEDCL was also forced to undertake distress load shedding in the state. Out of MSEDCL’s total contracted capacity of 33,496 MW, more than one-third belongs to Maharashtra State Power Generation Company Ltd (MSPGCL) and more than 60% of MSPGCL’s coal based capacity was unavailable during this period. It is important to note that the claims regarding coal shortage made by MSPGCL are contrary to the public statements made by the Ministry of Coal regarding coal availability and the data published by Coal India Ltd (CIL) regarding coal production and supply. Hence, it becomes important to evaluate whether the coal shortage claimed by MSPGCL and some other generators in the state could have been avoided by better planning.

Therefore, in order to bring in more clarity regarding coal procurement and generation planning processes, Prayas (Energy Group) has filed a petition before the MERC seeking a thorough analysis and examination of the reasons leading to sudden fall in availability of MSEDCL’s contracted capacity during September 2017. Prayas has demanded that the MERC should undertake such analysis based on data such as actual indents issued by MSPGCL to the concerned coal companies for coal requisition, coal supplied by CIL against such indents, and the details regarding how MSPGCL is utilising the coal supply contracted for its capacity (4522 MW) that is under planned economic and/or reserve shut down.

Prayas has submitted that the crisis like situation that emerged in September 2017 should be used as an opportunity to thoroughly evlauate generation planning and coal procurement processes in the state. Based on this analysis and to avoid such issues in future, the Commission should consider issuing specific process directions to the concerned companies. The petition is yet to be listed for hearing before the Commission.

Maharashtra State Power Generation Company Limited (MSPGCL) has filed a petition for capital cost and tariff determination of Koradi Units # 8, 9, & 10, Chandrapur Uinits # 8 & 9 and Parli Unit-8. The petition along with copy of the public notice can be downloaded from here. A public hearing in this regard was conducted by the Maharashtra Electricity Regulatory Commission (MERC) on 26th October 2017. Prayas participated in the hearing and made a submission which is attached below.

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