Maharashtra hikes cross subsidy surcharge

Maharashtra Electricity Regulatory Commission on 29th October 2013, rolled out an order which raises the cross subsidy surcharge (CSS) to a level which can be detrimental for the growth of power market in the state. This is MERC’s second revision to CSS charges in a single year. Such an increase in CSS is against Electricity Act 2003 and National Tariff Policy.

Recently, the Hon’ble Ministry of Power has also emphasized in an amendment to Electricity Act 2003 (refer) that respective  State commissions have the responsibility to specify a road-map for time bound reduction of cross subsidies. This move by the commission defeats the very purpose of open-access in power markets of India.

The exorbitant rise in CSS is well illustrated by a graphical analysis :

Fig: Graphical analysis of CSS hike

The order can be assessed here.

A relevant media article can be assessed : Business Standard.

 

 

Open Access Faces Hurdles from Discoms in Rajasthan

Recently, all the Discom’s in Rajasthan simultaneously came out with circulars with changes to the open access mechanism. The pretext of making these changes was the recent letter from the Law Ministry on Open Access. As an example, the key changes made by the circular of the Ajmer Discom (See Comml. AJ-484) are mentioned below:

  • Those consumers that draw power from the Discom’s only in an emergency will be levied temporary tariff (50% higher than the normal applicable tariff)
  • They will have to inform the Discom’s 48 hours in advance of the intent to draw such power
  • The Discom will have no obligation to supply power to them
  • Those consumers that draw power from both the Discom and other sources will also have the 48 hour prior intimation requirement. Also, once the decide to draw power from a source other than the discom, they will have to do so for the entire 24 hour period. They will also have additional surcharges during peak hours.
  • To top it all, the Ajmer Discom gave 4 days to the industry to choose which option they would like to go with

These changes will obviously make the open access proposition a non-starter. The 48 hour prior notice requirement is a big hindrance. At the same time the 24 hour block provision will make the purchase of power from power exchanges un-viable. The higher tariff’s will hurt too.

To be fair to the Discom’s, the need for prior intimation is well appreciated – it will enable them to plan their power procurement better. However, there are better way to achieve that. As in every other case, its the intent of the Discom’s that wrong here as well. As a detailed article in the Business Standard recently mentioned, the requirement to have the Discom the supplier of last resort will be critical in making open access a reality.

As for the circulars, RERC has put a stay on them for the time being, after several industries applied for relief.

Will Open Access system remain open ?

Open access system allows generating companies to sell power directly to distribution companies and bulk consumers of 1MW and above is going to be implemented soon. The ministry of power has instructed states to implement the open-access system of Electricity Act, 2003.

The question is whether it will remain open or not. There are lots of issues that need to be considered before open access system creates an open market in the power sector. Issues like availability of power on demand and negotiation of prices are major concerns for the system to be implemented smoothly.It took eight years to actually get started when the ministry of power sent its November 30 letter titled “Opinion from M/o. Law and Justice on the operationalisation of open access in power sector”, to all electricity regulatory commissions, state governments and the state power utilities.

The two major points mentioned in the letter is :

  1. That consumers with demand exceeding one megawatt (Mw) are perforce required to draw supplies from sources other than their local distribution company.
  2. Even if these consumers do continue to draw electricity from the local distribution company (discom), the rates must be negotiated between the two and, therefore, the state electricity regulatory commissions must cease to determine the retail energy tariffs by restricting themselves to determining only the wheeling charges and cross-subsidy surcharge.

In an article on the Business Standard the current scenario of the open access system in the Indian Power market is highlighted.

If the open access market opens it will reform the Indian power market where the generators could take investment decisions based on demand, without relying on power utilities or the State Government.

Try India’s First Online RPO Calculator here

Open Access in All States May Finally Become a Reality

An article in Business Standard mentioned that the Ministry of Power has issued an order to all state governments, power regulators and distribution utilities to implement the open access provisions of the Electricity Act, 2003.

The article further states that “the power ministry had taken the law ministry’s advice before issuing the new instruction on Tuesday”.

Further:

The law and judiciary department said “The provisions of section 42 (3) of the Electricity Act provides that a person requiring supply for electricity has to give notice. If the consumer intends to use the network of the distribution companies, he has to give notice and upon such notice to a discom, it is duty-bound to provide non-discriminatory open access to its network. Section 42 (3) cannot be construed to mean that giving of a notice is a pre-condition for the implementation of open access.”

It said the requirement of a notice was only to communicate the open access consumer’s intention of using the discom’s network in line with the relevant regulations and not to seek its permission for doing so.

The coverage in DNA on the same topic also mentioned the below:

“All 1 megawatt (mw) and above consumers are deemed to be open access consumers and that the regulator has no jurisdiction over fixing the energy charges for them,” the Ministry of Law said in a note to the Ministry of Power.

 

This interpretation is welcome, and much needed. The current practice, which provides discretion to the state utilities to provide open access, or not is a major roadblock. It has done nothing more than give additional discretion in a system that already dosen’t work.

See previous coverage on the topic of Open Access:

 

Try India’s First Online RPO Calculator here

 

Maharashtra Not to Allow Banking of Power to Renewable Generators

In another step back on the Open Access issue in Maharashtra, MSEDCL recently rolled back the banking provision for renewable energy generators opting for open access in the state.

A recent circular released by MSEDCL has proposed new rules for banking of power generated by renewable sources and sold under open access.

The key provisions regarding banking in the new circular are:

 

  • If energy is supplied in excess of consumption for every 15 minute time-block, such energy will lapse (will not be allowed to be banked)
  • If energy is consumed in excess of supply for every 15 minute time-block, the applicable tariff will be that of a Temporary Power connection.

 

The banking related provisions are mentioned below:

 

6.4 It is necessary that the consumer / person who so ever has opted for Open Access shall

use the entire power contracted of Open Access Generator and ensure that the

consumption of the consumer / person in every 15 minutes time block shall match with

the energy received at the drawal point during corresponding 15 minutes time blocks.

 

6.5 Whenever the consumer / person is unable to match every 15 minutes time block

consumption with the energy received at the drawal point during corresponding 15

minutes time blocks, then in such situation:

 

6.5.1 If the net energy received at the drawal point every 15 minutes time block exceeds

the net energy actually consumed during the corresponding 15 minutes time block,

the excess energy received during the said 15 minutes time block shall be treated as

lapsed and the consumer shall neither be permitted banking of such excess energy

nor shall be paid for the same, unless there is a separate agreement for banking or

sale/purchase of this over injection.

 

6.5.2 The facility of banking will be applicable in case of self use only; if permissible as per

GOM policy/ MERC Order/Regulations.

 

6.5.3 In the reverse situation, if the net energy received at the drawal point every 15

minutes time block is less than the net energy actually consumed during the

corresponding 15 minutes time block, the excess energy consumed by the consumer

/ person during the said 15 minutes time block shall be considered as over-drawal

from the Grid and shall be billed at the rate as may be applicable from time to time

for the energy charges payable by a consumer obtaining Temporary Power (for other

purposes) supply from MSEDCL. Further, in such situation, the consumer / person

shall also be liable to pay “Electricity Duty”, “Tax on Sale of Electricity”, etc. on such

excess energy consumed from the Grid.

 

This will effectively bring an end to open access by wind power producers in Maharashtra, as 60-70% of the power is produced in the ‘high season’ (roughly corresponding to monsoons). In the present scenario wind producers bank the excess energy produced in the high season, to be consumed throughout the year. If such a facility is not allowed, then wind generation in the state will not remain feasible, unless power is sold to the Discom. Note that the new rules for banking of power apply only to renewable energy generators under open access (not to captive users).

 

The second provision, under which the consumer will be charged at “temporary power’ connection rates, rather than the regular industrial connection rates will increase the cost of power substantially. (HT Industrial Tariff is Rs 5.27/unit while the Temporary Tariff is Rs 10.12/unit. See Tariff Order for details)

 

In effect, this provision will end ‘open access’ in Maharashtra for renewable energy generators.

 

 

Past articles on the Open Access issues in Maharashtra:

 

MP Proposes High Cross Subsidy Surcharge

After Maharashtra, it was the turn of MP to propose a high cross-subsidy surcharge. According to an approach paper released on the topic by MPERC, industrial consumers will have to pay upto Rs 1.53 per unit as cross-subsidy. This will make open access a non-starter in the state.

It is particularly disappointing as the RPO/ REC mechanism provides a strong incentive to companies to procure ‘Green Power’ – something that will directly encourage investment in renewables – the primary objective of the scheme to begin with, and something that states like MP can benefit from. But with a high cross subsidy as proposed, it will fail to take off.

Comments can be sent to MPERC by the 17th of this month.

Maharashtra Cross-Subsidy Declared

The ongoing cross-subsidy issue in Maharashtra, which was also the subject of a Supreme Court judgement recently, seems to have been resolved.

MERC came out with an order on the subject on September 9.

The highlights are:

Cross-subsidy (CSS) has been determined as follows:

– MSEDCL: HT Categories – Rs 0.21 unit to Rs 3.97 per unit. (the higher amount is for temporary connections; the majority of industrial consumers will face a CSS of 21 paise to 92 paise)
– RInfra-D: HT Categories – Rs 0.26 per unit to Rs 2.79 per unit.
– TPC-D: HT Categories (Only for Temporary Consumer) – Rs 2.58 per unit to Rs 2.81 per unit.

The order further notes that open access transactions from Renewable Energy will attract a cross-subsidy of 25% of the applicable charges. (This is great news for several wind and biomass producers, who may face CSS of 5 paise to 23 paise only, as against the earlier demand by MSEDCL of 80 paise)

Another interesting point is that MERC study suggests that despite the CSS, industrial consumers stand to gain “about Rs 1.47 per unit” from open access.

The order is available here. Also see Business Standard article on the subject here.

Supreme Court Allows Open Access in Maharashtra

The Supreme Court has dismissed the petition of MSEDCL for a stay on Open Access in Maharashtra. For those in the industry who have been tracking this issue for a while now, the Supreme Court action came quickly (only very recently the HC had dismissed the stay as well) and is a big relief.

Details are covered in the news article here and here.

Its noteworthy that the Supreme Court has refused to stay the granting of Open Access permissions – the courts have not ruled on the Cross-subsidy issue as yet, the SC has merely said that till such a ruling is made, MSEDCL cannot stay the grant of open access permissions.

For several people this is a big relief – as an example there are many windmills that are generating power for a long time and feeding into the grid without getting paid as the open access permission was withheld. We can now hope that MSEDCL’s high handedness will subside and they will work in true spirit towards power market reform.

Updated in September 2011:

An interesting article providing context and summarizing the issues is available here.

Also, MSEDCL put a snapshot of the judgement, with their interpretation – that’s available here.

The on-ground situation is that matter remains unresolved in MERC as of today. However, MSEDCL has granted “open access” to certain wind generators on a selective basis, and against some cross-subsidy commitments. However, true “open access” remains elusive.

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