THE ELECTRICITY ACT 2003

Implications on MSEB

&

Maharashtra

‘MSEB’s New Status as per Act’

• MSEB’S NEW STATUS:

– MSEB only continues as STU/SLDC & deemed distribution licensee for a year

• MSEB’s status after 1year(10th June 2004):-– Concurrence of GOI & GOM reqd. to

continue (But STU & SLDC to be separated). Otherwise transfer scheme becomes applicable.

In consultation with States, Central Govt. will formulate – National Electricity Policy,– Tariff Policy,– National Policy for rural electrification & bulk

purchase of power– National policy permitting stand alone system for

rural areasImplications : Far reaching :MSEB/ GOM should contribute in formulation of

these policies

‘ National Policies on Tariff, Electricity & Rural Electrification’(In consultation with State Govt.)

‘MERC becomes the licensing authority’

• MERC becomes the licensing authority in place of Govt. [Licenses for transmission, distribution & trading]

• MERC determines the tariff for generation, supply, transmission, wheeling, distribution & trading margin.

• MERC will adjudicate the disputes between licensees & GENCOs.

‘Generation freed from Licensing’

– Except for hydro, no license required for setting up a generation plant

Implications:

Increased Private investments in generation (Good for the sector as it reduces load shedding)

Merchant power plants may come up.

But not many GENCOs are expected in the beginning till introduction of open access

‘Captive Generation needs no license’

• Captive generation is Free (No license required)• Right to open access from plant to destination

– on payment of wheeling charges (to be decided by ERC)

• Associations of persons can set up a captive plant anywhere- primarily for their own use & MSEB will have to allow access through their lines on payment of wheeling charges (Without any Surcharge)

‘Implications of Captive Generation Provisions

• In order to prevent surcharge, provision of captive generation by association of persons may get used extensively.

• Industrial clusters may form their own associations and set up their own captive plants.

• Thus MSEB’s prime customers may go away unless MSEB reduces tariff on HT and improves service quality. HT may have to be exempted from load shedding to retain the customers.

Transmission licensee shall provide non-discriminatory open access to any licensee or genco on payment of the transmission charges.

Implications:• Facilitates trading & development

of market

‘Open access in Transmission’

‘Parallel Distribution Networks Possible’

– MERC can grant distribution license to more than one persons for distribution through their own networks in the same area

– MERC can not refuse the license if the applicant fulfills the condition of ‘ capital adequacy, credit-worthiness or code of conduct’ as prescribed by Central Govt.

• Implications:– MSEB will face competition in its HT & high revenue

areas. – Certain big cities or some areas in the big cities might

get more than one distribution licensee– Geographical area of distribution licensee will need to

be specified by MERC– If this is less than a ‘city’, immediate competition may

emerge especially in MIDC areas.

‘Open Access in Distribution in Phases’

– MERC will introduce open access in phases within one year

– Open access means that the customer can pick & choose their supplier.

– As decided by MERC, payment of wheeling charges, surcharge & an additional surcharge wherever applicable.

– Surcharge is to meet the current level of cross subsidies (to be phased out)

– Additional surcharge is to compensate for the obligation to supply

• Implications:– Competitors will be able to cherry pick MSEB’s high

revenue customers– Cross subsidy gets phased out & tariffs will reflect cost

of supply.

‘New Anti-Theft Provisions’– More stringent punishments for theft – Provision for Special Courts– Abetting a theft a crime– Theft a cognizable & non-bailable offenceImplications:

• GOM will have to open special courts, authorize officers of licensee to inspect the premises

• GOM to decide whether it wants the recently passed ‘Anti Theft Act’ to continue as before

Anti Monopoly Provision(60)

• ERC may issue directions as it considers appropriate to a licensee or a

GENCO if such a licensee or GENCO enters into an agreement or abuses its

dominant position or enters into a combination which is likely to cause or

causes an adverse effect on competition in electricity industry

‘Consumer Related Provisions’• Every distribution licensee to set up a forum

for redressal of grievances of consumers• MERC to set up an ombudsman• Anti-Monopoly Provision. • Supply to be given to consumer within one

month if no extension is reqd. (Penalty of Rs. 1000 per day for default)

• For failure to follow MERC’s directives:-– Heavy penalties like cancellation of distribution

license, appointment of administrator, per day penalties

Duties of Distribution Licensee

• To develop & maintain efficient distribution system & supply electricity

• To provide supply to the consumer who applies for the power within one month if no extension is required. Otherwise within a period specified by ERC (43)

• This period can be extended by ERC for a village/ hamlet or area where there is

no provision of electricity

Duties of Distribution Licensees (Contd..) “Defaulting Licensees”

• Defaulting licensee will be liable to a penalty up to Rs. 1000 per day of default (43(3))

• Neither the distribution licensee nor the ERC can show any undue preference or discriminate against any person or class of persons (45(4) & 62)

• No person shall be entitled to demand or to continue to receive from a licensee a supply of electricity for any premises having a separate supply unless he has agreed with the licensee to pay to him such price as determined by ERC.

Revocation of license

• License can be revoked by ERC:– For licensee not taking the necessary actions

under this act or breaking a condition of this act (19(1))

– Licensee’s financial position deteriorates & ERC feels that licensee is unable to discharge the duties in the license (19(1))

– In the public interest by the ERC (19(2))

• 3 month’s notice to be given for showing cause before revoking(19(3))

Use of Meters(55)• No supply of electricity without installation of

correct meters at all the places within 2 years of appointed date

• ERC can extend this period for a class of persons

• For current energy accounting, CEA can direct the installation of correct meters at any point in generation, transmission, distribution & trading of electricity (55(2))

• ERC may punish for any defaults in the implementation in metering

• Consumer can elect to purchase a meter (55(1), provision)

Restructuring of

Maharashtra State Electricity Board

‘Transfer Scheme’

• Type of Transfer Scheme is left to the State. Act only specifies that corporatisation & separation of STU & SLDC is a must.

• Any property, rights & liabilities belonging to SEB shall vest in State Govt.

• These will be re-vested by State Govt. in a Govt. company or Govt. companies by transfer scheme

• Transfer Scheme may provide for formation of subsidies, JV companies which may be STU or GENCO or transmission licensee or distribution licensee

Transfer Scheme (Contd…)• From the effective date the Board shall

cease to be charged with functions & duties which have been transferred

• Transfer can also take place to companies not fully owned by Govt. based on the payment of fair values

• State Government may provide for transfer of officers & employees to transferee

• Those officers & employees will not be entitled to any compensation or damage but their terms will not be less favorable than before (133(2))

Opportunities given by Act

• Subsidy has to be paid in advance by Govt.

• Tariff moves towards cost of supply

• MSEB can explore other business areas

• Anti Theft Provision

Future Options of MSEB• Consultant being appointed by MSEB

• Continue MSEB in the existing form (after separating STU & SLDC)

• Restructure MSEB as per the transfer scheme given in the Act by corporatisation

• Restructure MSEB as per the white paper provisions

• Other Restructuring options

Generation (Provisions & Implications) • No license required to set up, operate & maintain a

generating station complying with Grid Standards• Exception: Hydro(above a specified capital expend.)

where State Govt. Approval is necessary (7,8)• Govt. may give directions to the GENCO in extraordinary

circumstances by offsetting the cost incurred (11)• IMPLICATIONS:

Some small & large GENCOs could come up in the private sector to compete with MSEB. Gradually they may tie up for supply to new distribution licenses who could come up in high paying geographical areas. Also once open access is introduced they may pick & choose the lucrative consumers of MSEB. As the STU, MSEB will also have to prepare systems to allow GENCOs to transmit power through its transmission lines. Systems for deciding issues like wheeling charges etc. will have to be set up.

Captive Generation & Trading in Electricity

• “Captive generating plant” means a power plant set up by any person to generate electricity primarily for his own use and includes a power plant set up by any co-operative society or association of persons for generating electricity primarily for use of members of such co-operative society or association.”(2(8))

• ”Electricity trader" means a person who has been

granted a licence to undertake trading in electricity under section 12 (2(26));

• “Franchisee” means a persons authorised by a distribution licensee to distribute electricity on its behalf in a particular area within his area of supply(2(27));

MERC Approval Process for Captive Generation also

• Captive generation is Free (No license required)(Notwithstanding anything in the act, a person may construct, maintain or operate a captive generating plant & dedicated transmission lines)

• Right to open access from plant to destination– on payment of wheeling charges (to be decided by ERC) – subject to availability of adequate transmission facility (Adequacy to

be decided by STU & dispute regarding this to be adjudicated by ERC)

• However purchase of power from the captive & sale to them when they require will be governed by MERC on the same lines as for a generating station. (9)

• Non Discriminatory open access has to be provided by CTU/STU/Transmission Licensee to any transmission licensee or genco on payment of charges & a surcharge (decided by ERC) (38,39,40)

• Appropriate Govt. can give direction to RLDC/SLDC for maintaining smooth & stable supply of electricity

Transmission (Contd...)“Non-discriminatory open access”

• Two or more persons may be given license through their own systems within same area(14)

• Any person in the area of an existing distribution licensee can take supply from any other Genco or distribution licensee on payment of additional surcharge to meet the fixed cost of existing distribution licensee arising out of his obligation to supply.(42(3) & (4))

Distribution (Contd…)“Parallel Distribution License”

Where any person, whose premises are situated within the area of supply of distribution licensee, (not being a local authority engaged in the business of distribution

of electricity before the appointed date) requires a supply of electricity from a genco or any licensee other than such distribution licensee, such person may, by notice, require the distribution licensee for wheeling

such electricity in accordance with regulations made by the State Commission and the duties of the distribution

licensee with respect to such supply shall be of a common carrier providing non-discriminatory open

access.(42(3))

Where the State Commission permits a consumer or class of consumers to

receive supply of electricity from a person other than the distribution licensee of his area of supply, such consumer shall be liable to pay an additional surcharge on

the charges of wheeling, as may be specified by the State Commission, to meet the fixed cost of such distribution licensee arising out of his obligation to

supply (42(4))

• MSEB shall establish a forum for redressal of grievances of consumers as per guidelines specified by SERC (42(5))

• SERC will set up an ombudsman to hear grievances not redressed by the licensee’s forum (42(6))

Consumer Grievances Redressal Forum

Duties of Distribution Licensees (Contd..)

“Defaulting Licensees”• Defaulting licensee will be liable to a penalty up

to Rs. 1000 per day of default (43(3))• Neither the distribution licensee nor the ERC can

show any undue preference or discriminate against any person or class of persons (45(4) & 62)

• No person shall be entitled to demand or to continue to receive from a licensee a supply of electricity for any premises having a separate supply unless he has agreed with the licensee to pay to him such price as determined by ERC.

Revocation of license

• License can be revoked by ERC:– For licensee not taking the necessary actions under this

act or breaking a condition of this act (19(1))– Licensee’s financial position deteriorates & ERC feels

that licensee is unable to discharge the duties in the license (19(1))

– In the public interest by the ERC (19(2))

• 3 month’s notice to be given for showing cause before revoking(19(3))

Anti Monopoly Provision(60)

• ERC may issue directions as it considers appropriate to a licensee or a genco if such a licensee or genco enters into an agreement or abuses its dominant position or enters into a combination which is likely to cause or causes an adverse effect on competition in electricity industry

Very Powerful MERC(86)

• To determine the tariff for generation, supply, transmission & wheeling of electricity, wholesale, bulk or retail, as the case may be, within the State

• To regulate the electricity purchase and procurement process of distribution licensees including the price at which electricity shall be procured from the Gencos or licensees or from other sources through agreements for purchase of power for distribution and supply within the State

• To issue licenses to persons seeking to act as transmission licensees , distribution licensees & electricity traders with respect to their operations within the State

• To adjudicate upon the disputes between the licensees & gencos & to refer any dispute for arbitration

• To fix the trading margin in the intra-State trading of electricity, if necessary

• To specify or enforce standards with respect to quality, continuity & reliability of service by the licensees

• To promote cogeneration & renewable sources

• To establish the State Advisory Committee. The SAC will advise the SERC on major questions of policies, matters relating to quality, continuity & extent of service etc.

• To discharge any other function as may be assigned to it under this Act

Very Powerful MERC (Contd..)

Re-Organisation of Board(131-134)

• SEB after the expiry of the period of one year or as continued further (to be decided jointly by State Govt. & Central Govt.) will be transferred as per the transfer scheme to be proposed by State Govt. (172(c)(a), 131)

• A State Electricity Board constituted under the repealed laws shall be deemed to be the State Transmission Utility and a licensee under the provisions of this Act for a period of one year from the appointed date or such earlier date as the State Govt. may notify, and shall perform the duties and functions of the State Transmission Utility and a licensee in accordance with the provisions of this Act and rules and regulations made there under.Provided that the State Government may, by notification, authorize the State Electricity Board to continue to function as the State Transmission Utility or a licensee for such further period beyond the said period of one year as may be mutually decided by the Central Government and State Government. (172(a))

• Any property, rights & liabilities belonged to SEB shall vest in State Govt.• Those will be re-vested by State Govt. in a Govt. company by transfer

scheme• All debts & obligations, contracts, legal suits may be continued or instituted

by State Govt. or transferee as specified by transfer scheme

Sec.2(26) "electricity trader" means a person who has been granted a licence to

undertake trading in electricity under section 12;

Sec.2(27) “ franchisee means a persons authorised by a

distribution licensee to distribute electricity on its behalf in a

particular area within his area of supply;

Threats & Opportunities for MSEB

• We have seen the provisions in New Indian Electricity Act 2003.

• It is not possible to cover all implications in one discussion sessions.

• The implications on MSEB with respect to each provisions are also discussed by us.

• Now we shall see what are possible alternatives available to MSEB.