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UNIT 7 Pricing and Regulatory Aspects of Transmission Lines 175

Unit 7 Notes
__________________
__________________
Pricing and Regulatory Aspects __________________

of Transmission Lines __________________

__________________
__________________
__________________
Objectives
__________________
After studying this unit you should be able to:
__________________
y Know financial aspects related to power transmission
__________________
y Have an idea about EA 2003 and its objectives

Introduction

Transmission and Distribution (T & D) Losses

T&D losses continued to remain high. The reported all-India

average T&D losses increased from 19.8 per cent in 1992-93
to 26.45 per cent in 1998-99 and are anticipated to increase
to 27.8 per cent by 2001-02. There is a wide variation in losses
reported by different states for 2000-01 (RE), ranging from
17 per cent to 56 per cent. Based on the experience of a few
states that have unbundled their utilities, actual T&D losses
for the country as a whole are estimated to be in the 35-45
per cent range. The high T&D losses are attributed to:-

Weak and inadequate sub-transmission and distribution

systems due to haphazard growth of demand to meet the
short-term objective of extension of power supply to new
areas.

n Long transmission and distribution lines.

n Inappropriate size of conductors.

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Notes n Improper load management, resulting in overloading of

__________________ systems.
__________________
n Pilferage and theft of energy.
__________________
__________________
n Unmetered supply.
__________________
__________________ n· Financial constraints to undertake system improvement
__________________ schemes.
__________________ In order to reduce T&D losses, it is necessary that various
__________________ electricity supply organizations take up system studies and
__________________ carry out energy audits for identification of the causes of
excessive losses. Based on these studies, system
improvement projects should be formulated for
strengthening and revamping the distribution system,
improving the MIS and addressing issues of governance.

n The current level of T&D losses is very high. Although

the all-India T&D loss is reported to be about 28 per
cent, actual loss levels are estimated to be in the range
of 35-45 per cent. Further, losses in some states are much
higher than in others. Losses in Delhi and Jammu &
Kashmir were as high as 47 per cent and 56 per cent
respectively in 2000-01.

n While part of the T&D losses are due to technical

deficiencies in the system and the extensive low voltage
distribution network in rural areas, a large portion of
the loss is attributed to theft and pilferage compounded
by connivance on the part of line personnel.

n There are a large number of unmetered connections

particularly in the agriculture sector. Even if supply of
electricity to agriculture is to be subsidised, it should
be metered so that proper accounting can be maintained.

n Indiscriminate grid extension despite low load densities

(as measured by demand in MW divided by the length
of the T & D system) has resulted in a high ratio of low
tension (LT) to high tension (HT) lines. This has also
led to a large amount of pilferage.
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UNIT 7 Pricing and Regulatory Aspects of Transmission Lines 177
n There is a need to introduce energy audits to help Notes

generate reliable data for analyses in a systematic and __________________

meaningful manner. __________________
__________________
Accelerated Generation and Supply Programme Scheme
__________________
The Accelerated Generation and Supply Programme __________________
(AG&SP) were launched in 1997-98 initially for one year and __________________
were later extended up to 2001-02. The scheme covers the __________________
following activities:
__________________
1. R&M and life extension/rehabilitation. __________________
__________________
2. Ongoing generation projects.

3. Missing transmission links and system improvement.

4. Grant for studies.

The Ministry of Power provides a grant from its budget to

fund an interest subsidy of 4 per cent on normal lending rates
of the PFC to SEBs/State Generation Corporations (SGCs).
R&M schemes costing less than Rs. 100 crores are currently
also being financed under APDP. It is proposed that all R&M
schemes would be financed under AG&SP only and no
financing would be made through APDP during the period
2001-02 and 2006-07.

Programme for Central Assistance under APDP

Projects relating to the following areas are financed under
the APDP, which was initiated in 2000-01 in order to give a
fillup to power sector reforms:

i. R&M/life extension/upgrading fillup of old power plants

(thermal and hydel).

ii. Upgradation of the sub-transmission and distribution

network (below 33 KV or 66 KV) including energy
accounting and metering.

One of the main strategies identified for distribution reforms

is the development of distribution plans/projects for all
distribution circles. Sixty-three such circles have been
identified initially in which 11 KV feeders will be taken as
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Notes profit centres. Improvement/ strengthening of the sub-

__________________ transmission and distribution network, 100 per cent
__________________ metering, establishing of an MIS to improve billing,
__________________ collection, etc. will be taken up in the selected circles. It has
__________________
been decided to utilize APDP funds to develop the selected
circles as centres of excellence that can be replicated by the
__________________
states in the later phase of distribution reforms.
__________________
__________________ Funds under APDP are released to state governments as
__________________ additional Central Plan by the Ministry of Finance under
__________________
advice from the Ministry of Power.

__________________ Financial Performance of the SEBs

The financial health of the SEBs has deteriorated over the
years mainly due to higher level of technical and commercial
losses and subsidized sale of electricity to agricultural and
domestic consumers. The net subsidy of Rs. 5,404 crore on
agriculture and domestic sectors in 1991-92 was 46 per cent
of Central Plan assistance flowing to states/Union Territories
in that year. The same has increased substantially to Rs.
25,607 crore in 2000-01 and is likely to be 69 per cent of the
funds flowing from Central Plan assistance. Further, the
subsidy on account of the sale of electricity to the agricultural
sector has come down from Rs. 29,461 crore in 2001-02 annual
plan (AP) and is expected to come down to Rs. 26,959.30 crore
for 2002-03 (AP). This may be partly due to the reform and
restructuring process initiated by some of the states.

Financial Performance of the State Power Sector

(Rs. Crore)
1991-92 2000-01 2001-02 2001-02 2002-03
(Prov.) (AP) (RE) (AP)
A.(i) Subsidy
involved on
account of sale of
electricity to
(a) Agriculture 5,938.00 24,074.13 29,461 25,571.10 26,959.30
(b) Domestic 1,310.00 9,968.04 11,267 10,894.14 11,651.01
(c) Inter-state sales 201.00 385.51 510 247.36 225.89
Gross subsidy 7,449.00 34,427.68 41,238 36,712.59 38,836.20

Contd.
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UNIT 7 Pricing and Regulatory Aspects of Transmission Lines 179
Notes
(ii) Subventions 2,045.00 8,820.33 8,370 10,099.16 7,980.84
received from state __________________
governments.
__________________
(iii) Net subsidy 5,404.00 25,607.35 32,868 26,613.43 30,855.36
__________________
(iv) Surplus 2,173.00 3,434.93 5,526 3,614.88 7,499.00
generated by sale __________________
to other sectors
__________________
(v) Uncovered 3,231.00 22,172.42 27,342 22,998.56 23,356.37
subsidy __________________

B. @ Commercial 4,117.00 25,394.89 28,445 27,306.44 24,320.99 __________________

losses __________________
Commercial losses 16,574.56 17,207.28 16,340.15 __________________
(net of state
subvention) __________________
C. Revenue
Mobilization
(i) Rate of Return -12.70 -41.82 -38.20 -39.48 -32.08
(ROR) #
(ii) Additional
revenue
mobilization from
achieving
(a) 3 per cent ROR 4,959.00 27,216.62 30,280 29,403.65 26,226.42
(b) From 2,176.00 1,637.83 1,840 1,350.44 1,329.71
introducing 50
paise/ unit from
agriculture/irrigation

RE : Revised Estimates, AP : Annual Plan Projections, # In

Percent

@ Commercial losses are different from uncovered subsidy

because they include financial results of other activities
undertaken by the SEBs.

Note:

i. The information relating to the subsidy for agriculture,

domestic and inter-state sales for 1999-2000, 2000-01 and
2001-02 in respect of Orissa is not available, as the
distribution is now with private companies. The
information regarding commercial losses pertains to
GRIDCO only.

ii. Information in case of Andhra Pradesh, Haryana,

Rajasthan, UttarPradesh and Karnataka relates to T&D
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Notes companies set up after the reforms. In the case of other

__________________ states, the information pertains to SEBs.
__________________
iii. The estimates do not include information relating to
__________________
Uttaranchal as these have not been furnished by the
__________________ state.
__________________
__________________ Success Stories of the Power Sector
__________________ n The Plant Load Factor (PLF) of thermal stations
__________________ improved from 63.0 per cent in 1996-97 to 69.90 per cent
__________________ by 2001-02. The PLF of the nuclear power stations
__________________ improved from 55.90 per cent to 79.4 per cent over the
same period.
n Thirteen States have constituted and operationalised
State Electricity Regulatory Commissions (SERC) while
six others have notified the constitution of the SERCs.
n The SERCs of Orissa, Andhra Pradesh, Uttar Pradesh,
Maharashtra, Gujarat, Karnataka, Rajasthan, Delhi,
Madhya Pradesh, Himachal Pradesh and West Bengal
have issued tariff orders.
n Seven States have unbundled/corporated their SEBs
into separate companies for generation, transmission
and distribution. Of these, Orissa and Delhi have
privatized distribution.
n A three-stage clearance procedure has been introduced
for central sector hydro-electric projects to minimize
time and cost overruns.
n The Accelerated Generation and Supply Programme
(AG&SP) provided incentives in the form of interest
subsidy to SEBs/states and central power utilities. This
has helped in carrying out power development activities
particularly in the state sector. The capacity addition
in the state sector achieved was around 88 per cent of
the target, in which the contribution of AG&SP was
around 55 per cent. The scheme has also given boost to
the renovation and modernization (R&M) programme
during the Ninth Plan period (1991-92 to 1996-97). The
additional generation due to the incentives given
through AG&SP is estimated to be about 10,000 MU/
annum.
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UNIT 7 Pricing and Regulatory Aspects of Transmission Lines 181
n The Accelerated Power Development Programme Notes
(APDP) scheme was initiated in 2000-01 with the __________________
objective of giving a flip to reforms in the distribution __________________
segment. The scheme is now proposed to be modified as __________________
the Accelerated Power Development and Reform __________________
Programme (APDRP), which is a critical investment for
__________________
providing distribution reforms. Under the modified
__________________
scheme, there would be an element of incentive linked
__________________
to achievement of certain reform-based parameters
besides provision for investment in the distribution __________________

sector. __________________

n In order to liquidate the outstanding dues of CPSUs, a __________________

mechanism was evolved for one time settlement of these

dues payable by states.
n In the programme of electrification of remote villages,
there has been success in electrifying the Sagar Island
situated in the Sundarban region of West Bengal
through solar energy. About 1,400 families on this island
have benefited from the community and individual solar
photovoltaic systems. The community is totally involved
in the operation and revenue collection in this
programme.

Capacity Additions Required

According to the Sixteenth Electric Power Survey (EPS), the
electricity requirement at the bus bar (utilities only) in 2006-
07 will be as follows:

Demand for Power in 2006-07 as per Sixteenth EPS

Region Energy Requirement Peak Load

(MKWh) (MW)

Northern 2,20,820 35,540

Western 2,24,927 35,223
Southern 1,94,102 31,017
Eastern 69,467 11,990
North-Eastern 9,501 1,875
Andaman & Nicobar Isl. 236 49
Lakshadweep 44 11
All India 7,19,097 1,15,705
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Notes Sector-wise vis-a-vis Mode-wise Capacity Addition

__________________
Proposed During 2001-02 to 2006-07
__________________
__________________ Source Central State Private Total
__________________ Hydro 8,742 4,481 1,170 14,393
__________________ Thermal 12,790 6,676 5,951 25,417
__________________ Nuclear 1,300 - - 1,300
__________________ Total 22,832 11,157 7,121 41,110
__________________
Keeping in view the status of the ongoing, sanctioned and
__________________
new projects in the pipeline, it is felt that a target capacity
__________________
addition of 41,110 MW - 18,659 MW from ongoing projects,
9,193 MW from projects cleared by the CEA and 13,258 MW
from new schemes - would be more realistic. Even under this
lower estimate for capacity addition, only 27,852 MW
appears to be firmed up so far. Vigorous and urgent steps
have to be taken for the balance capacity addition
programme.

The public sector will continue to play a dominant role during

the period 2001-02 to 2006-07 while progress along the reform
path helps clear the roadblock for greater private
participation in the medium to long term.

The capacity addition will be contingent upon fuel linkages

being firmed up and early start of work on new projects. For
the new projects, particularly in the central sector, it is
essential to simplify and streamline procedures for input
linkages/techno-economic clearance/investment clearance.

Generating Capacity Anticipated by 2006-07

Hydro Thermal Nuclear Total

Installed 26,261.22 74,428.82 2,720.00 1,03,410.04*
Capacity as
on 31.3.2002
Addition 14,393.20 25,416.64 1300.00 41,109.84
During Tenth
Plan
Total 40,654.42 99,845.46 4,020.00 1,44,519.88
Capacity on
31.3.2007
·

*excludes the capacity of 1,507.46 MW from wind

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UNIT 7 Pricing and Regulatory Aspects of Transmission Lines 183
Private Sector Notes
__________________
The initial response of domestic and foreign investors to the
__________________
policy of private participation in the power sector had been
__________________
encouraging. However, many projects have encountered
unforeseen delays in the finalization of power purchase __________________

agreements, guarantees and counter-guarantees, __________________

environmental clearances, matching transmission networks __________________
and legally enforceable contracts for fuel supplies. One of __________________
the most important impediments to private participation was __________________
the bankruptcy of the monopoly purchaser - the SEBs. This
__________________
necessitated complex payment security mechanisms for
__________________
achieving financial closure. Further, the high tariff of power
from some of the commissioned independent power projects
(IPPs) due to factors such as high cost of liquid fuels, risk
factors involved and unrealistic forecast for future growth
of demand, etc. have prevented full utilization of available
capacities. With the power sector reforms already set in
motion, these problems are expected to be sorted out in due
course.

The status of private power projects as on 1 February 2002

is as follows:-

Description Number Capacity (MW)

Projects techno- 58 29,614.50
economically cleared
by CEA
Private power projects 15 4,427
fully commissioned
Private power projects 7 3,432
under Construction

In addition, 18 private projects not requiring techno-

economic clearance of the CEA, with a total capacity of about
2,340 MW, have been commissioned and two projects with
total capacity of 36 MW are under construction.

Private Sector Participation

The policy of inducting private investment into the power
sector, initiated in 1991, was expected to result in the
addition of 17,588 MW of power capacity in the Ninth Plan.
The actual achievement was 5,061 MW, a mere 29 per cent of
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Notes the target. The achievement ratio for the central and state
__________________ sectors comparatively was higher at 38 per cent and 88 per
__________________ cent respectively. The main impediments have been:
__________________
n The chronic financial weakness of SEBs.
__________________
__________________ n Unviable tariffs to IPPs, due to factors such as high cost
__________________ of liquid fuels, risk factors involved and slow growth in
__________________ demand for future power below the expected levels, etc.
__________________ n The absence of an enabling regulatory, legislative and
__________________ market environment.
__________________
n The slow pace of reform in the power sector and related
sectors such as coal, transport.

n The inability to deliver bankable contractual

frameworks.

n The lack of recognition of the fact that the distribution

segment would need to be made efficient and bankable
before private investment and competition emerges in
generation.

Captive Power Generation

The industrial sector is the largest consumer of electricity.

Besides purchasing power from the utilities, a number of
industries, viz. aluminum, cement, fertilizer, iron, steel,
paper, sugar, etc. have their own captive power plants either
to supplement the electricity supply from the utilities or for
generating electricity as a by-product through co-generation.
Captive power plants are being set up by industries to meet
their own power requirements to enable them to tide over
problems due to power shortages and poor quality of supply.
The Electricity Bill, 2001 proposes to free captive generation
and enable captive generators to sell directly to other
consumers by wheeling power through the grid under an
open access regime. However, the Tenth Plan capacity
addition has been finalized based on the demand as per the
Sixteenth Electric Power Survey that excludes the demand
met by captive power plants.
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UNIT 7 Pricing and Regulatory Aspects of Transmission Lines 185
In accordance with the guidelines issued by the Ministry of Notes
Power, the following categories would be eligible to install __________________
captive power plants: __________________
__________________
n A consumer of electricity.
__________________
n· A group comprising more than one consumer as a joint __________________
venture.
__________________
n An actual user of power but not a consumer. __________________
__________________
n A group of actual users of power, but not consumers, as
__________________
a joint venture.
__________________
n A group comprising both consumers and actual users of
power as a joint venture but excluding `Generating
Company' as defined under Section 2 (4A) of the
Electricity (Supply) Act, 1948.

n If the captive plants fall under the category of hydro or

co-generation plant, such plant may be permitted,
irrespective of its size and the power supply position in
the state.

n If the captive power plant is based on coal or liquid fuel

or gas and if the state is deficit in power supply, the
installation of the plant could normally be allowed and
the plant can be permitted to have a capacity up to 200
per cent of the requirement of the host industry.

n If the captive power plant is based on coal, liquid fuel or

gas and the state is surplus in power, the installation of
such captive plants can still be considered in cases where
the state/SEB cannot guarantee uninterrupted supply
or stipulated quality of supply (within prescribed voltage
and frequency variations) required by the industry or a
particular process. Further, captive generation may also
be permitted if it is found, after a review of costs and
tariffs, to be more economical than grid supply.

n Banking facilities may also be provided to the captive

plants so that available capacities are utilized to the
extent possible and when required. The rates for banking
may be determined on mutually agreed terms.
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Notes n Units in Special Economic Zones (SEZ) and industrial

__________________ estates may be allowed to set up captive power plants
__________________ liberally.
__________________
__________________
Augmenting Transmission
__________________ Augmenting Transmission Capability
__________________
The investments in and growth of Transmission, sub-
__________________
Transmission and Distribution Systems have not matched
__________________
the increase in generating capacity. Consequently, there are
__________________
constraints of power evacuation from generating stations.
__________________
Investments in strengthening transmission, sub-transmission
and distribution systems within the region and building inter
regional links is the principal need of the immediate future.

The problem is severe in the eastern region, where surplus

capacity is idling due to lack of absorption network and
evacuation facilities. The power sector development
demands a thrust on Transmission sector and the following
blueprint is envisaged for this sector.

Formation of National Grid

Before the beginning of the planning era in 1951, the
electricity supply industry in the country consisted of
generating stations supplying power to loads in their
immediate vicinity. With a view to promote reliability of
power supply and achieving operating economies,
interconnections of individual systems was done leading first
to the formation of State grids. The uneven geographical
distribution of exploitable energy resources (coal and hydro
potential in the country) necessitated large scale
transportation of coal across the State boundaries. A decision
was taken in the early sixties to create regional electricity
grids as basic units for power planning and operations of the
electric power system. In the seventies, the regional grids
were in position and advantages of sharing generating
capacity between the States, and the inter-connected
operation were being obtained. In the eighties, with the
commissioning of the Regional power stations by Central
sector Generating Companies (NTPC, NHPC) and
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UNIT 7 Pricing and Regulatory Aspects of Transmission Lines 187
construction of EHV transmission lines by them transcending Notes
state boundaries, the development of regional grids was __________________
further accelerated. This has necessitated the formation of __________________
a National Power Grid to fulfill the following objectives: __________________

n Enable transfer of power from power surplus regions to __________________

deficit regions. __________________

__________________
n Enable optimal development and utilization of coal and
__________________
hydro resources, in the overall interest of the nation.
__________________
n Improve economy, reliability and quality of power __________________
supply. __________________

Towards the objective of formation of National Grid, a

number of inter-regional schemes have been planned for
phased development. The brief status including inter-
regional links under operation, approved schemes and future
programme is presented ahead:

Inter-regional Links under Operation

Regions inter-
Name of the link Capacity (MW)
connected

HVDC Links

Vindhyachal HVDC back to back West and North 500

Chandrapur HVDC back to back West and South 1000

Gazuwaka HVDC back to back East and South 500

AC Links

Korba-Budhipadar 220kV 3 ckts West and East 450

Balimela-Upper Sileru 220 kV S/c East and South 200

Kolhapur-Belgaum 220 kV D/c West and South 300

Lower Sileru and Burgur West and South 100

Dehri-Sahupuri 220 kV S/c

North and East 200
Karmnasa - Sahupuri 132 kV D/c

Biharshariff-Sarnath 400 kV D/c* North and East 500

Birpara-Salakati 220 kV D/c East and North-East 100

Auraiya-Malanpur 220 kV D/c North and West 200

Bongaigoan-Malda 400 kV D/c North-East and East 800

Total 4850
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Notes *This 400 KV transmission line is part of 500 MW Sasaram

__________________ HVDC back to back link. At present it is utilised to transfer
__________________ power to Northern Region in a radial mode. This line has
__________________ been completed in advance to evacuate the surplus power
__________________
from Eastern Region. With completion of Sasaram HVDC
back to back station it would be reckoned as part of 500 MW
__________________
Sasaram HVDC back to back link.
__________________
__________________ With the help of the above links, transfer of power among
__________________ the regions, especially from the power surplus Eastern
__________________
Region,

__________________ New Approved Schemes

In order to further strengthen the interconnection between
regions, some more schemes have been approved which has
enhanced significantly, as can be seen from the chart below:

Energy Transferred Among Regions (Million Units)

Energy Transferred

Additional Inter-regional Schemes by 2003

Name of the link Regions inter-connected Capacity (MW)

Talcher-Kolar HVDC bipole East and South 2000

Rourkela-Raipur 400kV D/c East and West 1000

Total 3000
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UNIT 7 Pricing and Regulatory Aspects of Transmission Lines 189
The existing and new approved inter-regional links are Notes
indicated in Figure-1 on next page. __________________
__________________
__________________
__________________
__________________
__________________
__________________
__________________
__________________
__________________

Figure 7.1: The existing and new approved inter-regional

links

Future Programme

Looking into the future demand and availability of

generation resources, a Perspective Transmission Plan has
been drawn up indicating the major inter-regional
transmission highways to be developed by 2011-12. This will
ultimately lead to the formation of a strong National Grid.
These highways are proposed to be established in phases
matching with the requirement of inter-regional power
transfer.
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Notes
__________________
__________________
__________________
__________________
__________________
__________________
__________________
__________________
__________________
__________________

As per the envisaged programme, cumulative capacity of the

inter-regional links will be enhanced as shown in the graph.

Evacuation of surplus power from Eastern Region

Eastern Region at present is having substantial energy
surplus, as load growth has not been commensurate with the
generation capacity addition, leading to non-utilisation of
available capacities. The total installed capacity in the
Eastern Region is of the order of 15,000 MW (out of which
NTPC contributes 3900 MW) whereas the peak load is around
6500-7500 MW and off-peak load is 4000-4500 MW.

While the formation of National Grid is an ultimate solution

to remove inter-regional imbalances, the following schemes
have been completed on priority basis to facilitate power
transfer from surplus Eastern Region to other deficit Regions,

n 220 kV 3rd Ckt Korba-Budhipadar connecting ER & WR.

n Jeypore-Gazuwaka HVDC Bipole between ER & SR.

n 220 kV S/c Balimela-Upper Sileru between ER & SR.

n 400 kV D/c Bongaigoan-Malda between ER & NER.

n 220 kV D/c Birpara-Salakati between ER & NER.

n 220 kV S/c Dehri-Mughalsarai between NR & ER.

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n 400 kV Sasaram-Sarnath-Allahabad line between NR & Notes
ER. __________________
__________________
With the above concerted efforts, energy exchange from
__________________
Eastern Region has increased to the tune of about 6,790 MUs
in 2000-2001 as against 5500 MUs in 1999-2000, registering a __________________

growth of more than 23%. However total transfer of only 1100 __________________
MW is possible currently. Inter-regional links to increase __________________
the transfer to 4400 MW in short run involving an __________________
investments of Rs.17,600 crores are proposed. __________________

A task force under the Chairmanship of Special Secretary __________________

(Power) has been constituted by Ministry of Power to __________________

formulate a short-term action plan for evacuation of surplus
power from Eastern Region.

Monitoring of grid discipline and grid issues

Grid discipline is a pre-requisite for maintenance of primary
grid parameters namely frequency and voltage within
permissible limits for safe, secure and stable operation of
the grid. However in India, the operating frequency goes
beyond the permissible range of 49-50.5 Hz. mainly due to: -

n Mismatch in generation and demand.

n Due to chronic power shortages, there is a tendency

among state utilities to overdraw from the grid during
peak hours. Predominance of thermal / base load
stations and inadequate peaking capacity (hydro / gas
turbines) limiting the flexibility of generation control
as per load pattern of the grid.

Lack of grid discipline leads to critical situations of the kind,

which happened on the 2nd of January 2001 in the Northern
region, when the entire grid failed. A failure of this
proportion not only causes severe stress on the power plant
equipment and reduces its life, it also has a cascading effect
on the industries and the people. It adds up to huge economic
losses and causes immense damage to the country's image.
After the grid failure in January 2001, at the instance of the
Minister of Power, the Chairman, CEA conducted an inquiry
and submitted its report. Follow-up action on the report is
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Notes being taken on priority. The following measures have already

__________________ been taken. :
__________________
n Modification and modernisation of Panipat 400 KVA
__________________
substation.
__________________
n In-principle approval of CEA given to (i) series
__________________
compensation for Panki-Muradnagar. (ii) providing
__________________
interconnection between 400 KVA substations of
__________________
POWERGRID and UPPCL at Agra, and (iii) preponing
__________________
of Allahabad-Mainpuri-Ballabgarh 400 KV double circuit
__________________ line.
__________________
n All States have been advised to observe strict grid
frequency discipline, promptly carry out the instructions
of RLDC, ensure free governor operation of their power
plants and expedite capacitor installation programme.

As a result of these measures, there has been substantial

improvement in grid frequency. However the situation is
being closely monitored to prevent its recurrence.

Encouraging FDI in Transmission

Out of the Rs. 8,00,000 crores required for doubling the power
capacity to 2,00,000 MW by the year 2012, about Rs. 2,00,000
crores would be required for the associated transmission
system including creation of a National Grid. Out of this, an
investment of about Rs.70,000 crores would be required in
Central Sector Transmission Systems alone. POWERGRID
is expected to mobilise an investment of Rs.41,000 crores
from its own resources. The balance requirement of Rs.29,000
Crores is proposed to be mobilised through private
investments.

Considering the scale of investment and the volume of

expansion required, attracting large private investment in
transmission is essential. The Government of India amended
Indian Electricity Act and Electricity Supply Act in 1998, to
enable private sector participation in transmission sector.
In January 2000, the Ministry of Power has issued detailed
guidelines for private sector participation in transmission.
The Guidelines envisage two routes for inviting private
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UNIT 7 Pricing and Regulatory Aspects of Transmission Lines 193
sector participation. One route is through Joint Venture of Notes
POWERGRID and private investor. The other route called __________________
IPTC (Independent Power Transmission Corporation) shall __________________
facilitate private investor including investors coming __________________
through FDI to invest 100% by themselves. __________________
__________________
Preparation of Manual on Disaster Management
__________________
Power is an essential service and it is one of the first to be __________________
affected by natural disasters like the earthquake in Gujarat
__________________
in January, 2001 and the cyclone in Orissa in October, 1999.
__________________
It is, therefore, necessary to have a clear-cut action plan
__________________
ready for managing major breakdown of essential power
supply posing wide-spread and protracted problems.
Ministry of Power has directed all power sector utilities and
State Electricity Boards to prepare contingency plans to
meet situations arising out of breakdown of machinery and
equipment and disruption of power system due to any reasons
including natural calamities. Such action plans have already
been drawn by a number of State Electricity Boards and
Central Power Sector Undertakings such NTPC, NHPC,
PGCIL, BBMB.

Transmission Pricing
The transmission system in the country consists of the
regional networks, the inter-regional connections that carry
electricity across the five regions, and the State networks.
The national transmission network in India is presently
under development. Development of the State networks has
not been uniform and capacity in such networks needs to be
augmented. These networks will play an important role in
intra-state power flows and also in the regional and national
flows. The tariff policy, insofar as transmission is concerned,
seeks to achieve the following objectives:

1. Ensuring optimal development of the transmission

network to promote efficient utilization of generation
and transmission assets in the country;

2. Attracting the required investments in the transmission

sector and providing adequate returns.
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Notes Transmission Pricing

__________________
1. A suitable transmission tariff framework for all inter-
__________________
state transmission, including transmission of electricity
__________________
across the territory of an intervening State as well as
__________________ conveyance within the State which is incidental to such
__________________ inter-state transmission, needs to be implemented with
__________________ the objective of promoting effective utilization of all
__________________ assets across the country and accelerated development
__________________ of new transmission capacities that are required.
__________________ 2. The National Electricity Policy mandates that the
__________________ national tariff framework implemented should be
sensitive to distance, direction and related to quantum
of power flow. This would be developed by CERC taking
into consideration the advice of the CEA. Such tariff
mechanism should be implemented by 1st April 2006.

3. Transmission charges, under this framework, can be

levied on MW-mile basis, zonal postage stamp basis, or
some other pragmatic variant, the ultimate objective
being to get the transmission system users to share the
total transmission cost in proportion to their respective
utilization of the transmission system. It is necessary
that transmission tariff framework gives the right
signals for setting of new generation and also ensures
that merit order of generating stations does not get
distorted. The overall tariff framework should be such
as not to inhibit planned development/augmentation of
the transmission system, but should discourage non-
optional transmission investment.

4. In view of the approach laid down by the NEP, prior

agreement with the beneficiaries would not be a pre-
condition for network expansion. CTU/STU should
undertake network expansion after identifying the
requirements in consultation with stakeholders and
taking up the execution after due regulatory approvals.

5. To meet the revenue requirement of transmission

developers other than CTU/STU within national tariff
framework, competitively, determined annuity may be
added to the revenue pool which is to be recovered
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UNIT 7 Pricing and Regulatory Aspects of Transmission Lines 195
through transmission tariffs. Investment may be invited Notes
on the basis of bids in which the investor will get the __________________
annuity for making his transmission asset available __________________
according to laid down operational norms. The Central __________________
Government will issue guidelines in the three months __________________
for bidding process for developing transmission
__________________
capacities through annuity based tariffs determined
__________________
competitively.
__________________
6. As far as possible consistency should be maintained in __________________
transmission pricing framework in inter-State and intra- __________________
State systems. Accordingly, after the implementation
__________________
of the proposed framework for the inter-State
transmission system, a similar approach should be
implemented by SERCs in next two years for the intra-
State transmission system, duly considering factors like
voltage, distance, direction and quantum of flow.

7. Metering compatible with the requirements of the

proposed transmission tariff framework should be
established on priority basis. The metering should be
compatible with ABT requirements, which would also
facilitate implementation of Time of Day (ToD) tariffs.

Approach to transmission loss allocation

1. Transactions should be charged on the basis of average
losses, as applicable to relevant voltage level, on the
transmission system. The loss framework should ensure
that the loss compensation is reasonable and linked to
applicable technical loss benchmarks. The benchmarks
should be determined by the Appropriate Commission
after considering advice of CEA.

It would be desirable to move to a system of loss

compensation based on incremental losses.

2. The Appropriate Commission may require necessary

studies to be conducted to establish the allowable level
of system loss for the network configuration, and the
capital expenditure required to augment the
transmission system and reduce system losses. Since
additional flows above a level of line loading leads to
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Notes significantly higher losses, CTU/STU should ensure

__________________ upgrading of transmission systems to avoid the
__________________ situations of overloading. The Appropriate Commission
__________________ should permit adequate capital investments in new
__________________
assets for upgrading the transmission system.
__________________
Other issues in transmission
__________________
__________________
1. Financial incentives and disincentives should be
implemented for the CTU and the STU around the key
__________________
performance indicators (KPI) for these organizations.
__________________
Such KPIs would include efficient network construction,
__________________ system availability and loss reductions.

2. All available information should be shared with

intending users by the CTU/STU and the load dispatch
centers, particularly information on available
transmission capacity.

Electricity Act, 2003

Objective : Competition, Protection of Consumers interests
& Power for all Areas

n Creates liberal framework for power development.

n Creates competitive environment.

n Facilitates private investment.

n De licenses generation except for hydro : Captive free

from controls.

n Rural Areas : Stand alone Generation and Distribution

delicenced.

n Multiple licensing in Distribution.

n Stringent provisions for controlling theft of electricity.

n Focus on revenue recovery in cases of unauthorized use

of electricity.

n Obliges States to restructure Electricity Boards.

n Mandates creation of Regulatory Commissions.

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UNIT 7 Pricing and Regulatory Aspects of Transmission Lines 197
n Retail tariff to be determined by regulatory commissions. Notes
__________________
n Open access in Transmission from outset.
__________________
n Open access in Distribution to be allowed by SERCs in __________________
phases. __________________

n Gradual phasing out of cross subsidies. __________________

__________________
n Trading distinct activity permitted with licensing
__________________
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.

1. 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).

2. 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 appears 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.

3. The Hon'ble Prime Minister and Chief Ministers have

set before the nation the goal of electrifying all our
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Notes 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 government
support. The consumer is paramount and he should be
served well with good quality electricity at reasonable
rates.

4. 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,
transmission, distribution, trading and use of electricity
and generally for taking measures conducive to
development of electricity industry, promoting
competition therein, protecting interest of consumers
and supply of electricity to all areas, 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.

5. The Act strikes a balance which takes into account the

complex ground realities of the power sector in India
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UNIT 7 Pricing and Regulatory Aspects of Transmission Lines 199
with its intractable problems. The salient features of Notes
the Act are: __________________
__________________
i. The Central Government to prepare a National
__________________
Electricity Policy in consultation with State
Governments. (Section 3) __________________
__________________
ii. Thrust to complete the rural electrification and
__________________
provide for management of rural distribution by
__________________
Panchayats, Cooperative Societies, non-
__________________
Government organizations, franchisees, etc.
(Sections 4, 5 & 6) __________________
__________________
iii. Provision for licence free generation and
distribution in the rural areas. (Section 14)

iv. Generation being delicensed and captive

generation being freely permitted. Hydro projects
would, however, need clearance from the Central
Electricity Authority. (Sections 7, 8 & 9)

v. Transmission Utility at the Central as well as State

level, to be a Government company - with
responsibility for planned and coordinated
development of transmission network. (Sections 38
& 39)

vi. Provision for private licensees in transmission and

entry in distribution through an independent
network. (Section 14)

vii. Open access in transmission from the outset.

(Sections 38-40)

viii. Open access in distribution to be introduced in

phases with surcharge for current level of cross
subsidy to be gradually phased out along with cross
subsidies and obligation to supply. SERCs to frame
regulations within one year regarding phasing of
open access. (Section 42)

ix. Distribution licensees would be free to undertake

generation and generating companies would be free
to take up distribution businesses. (Sections 7, 12)
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Notes x. The State Electricity Regulatory Commission is a

__________________ mandatory requirement. (Section 82)
__________________
xi. Provision for payment of subsidy through budget.
__________________
(Section 65)
__________________
__________________
xii. Trading, a distinct activity is being recognised with
the safeguard of the Regulatory Commissions being
__________________
authorised to fix ceilings on trading margins, if
__________________
necessary. (Sections 12, 79 & 86)
__________________
__________________ xiii. Provision for reorganization or continuance of SEBs.
__________________
(Sections 131 & 172)

xiv. Metering of all electricity supplied made

mandatory. (Section 55)

xv. An Appellate Tribunal to hear appeals against the

decision of the CERC and SERCs. (Section 111)

xvi. Provisions relating to theft of electricity made more

stringent. (Section 135-150)

xvii. Provisions safeguarding consumer interests.

(Sections 57-59, 166) Ombudsman scheme (Section
42) for consumers grievance redressal.