27 April, 2015
Introduction
India is the fourth largest consumer of power in the world, yet ironically, load shedding and low grade power supply are frequently experienced. A part of the problem rests with the geographical disparity of India where the generating companies (mostly thermal and hydro-electric power plants) are located at a geographical distance away from major consumption centers (such as the metropolitan cities and industrial zones). Such disparity coupled with poor investments in transmission and distribution lines has caused certain areas of the country to be energy surplus but cause certain other areas to have high peak deficiency. Though, the regional transmission and distribution grids are now interconnected to a national grid, major steps are required to be taken in order to ensure 100% electricity availability throughout the nation.
Electricity is a concurrent subject under the Indian Constitution, which means both the Central and State Legislatures have the authority to enact laws on the subject. The Electricity Act, 2003 (the "Electricity Act") is the governing legislation on the subject, covering all aspects of electricity in India relating to generation, transmission, distribution, trading and use of electricity. The Electricity Act takes into account the complex ground realities of the power sector in India with the aim to transform this sector.
Prior to the Electricity Act coming into force, the electricity sector was governed by Indian Electricity Act, 1910; Indian Electricity (Supply) Act, 1948; and Electricity Regulatory Commission Act, 1998. The Electricity Act consolidates all the electricity legislations into one Act. The Electricity Act de-licenses power generation completely (except for hydro-power projects over a certain size) and provides for, amongst others, newer concepts like Power Trading, Open Access.
Under the Electricity Act, the term "Open Access"means "the non-discriminatory provision for the use of transmission lines or distribution system or associated facilities with such lines or system by any licensee or consumer or a person engaged in generation in accordance with the regulations specified by the Appropriate Commission.''
Open Access allows eligible consumers (the "End Users") of power to buy electricity from the generating companies or trading licensees (the "Suppliers") of their choice and correspondingly, the generating companies have the freedom to sell the power to any licensee or to the End Users. Simply put, it is a mechanism that provides a choice to the Suppliers to sell power to the End Users without any discrimination while the End Users can source their needs from the most economic Suppliers.
The Electricity Act envisages Open Access in transmission and distribution network. As regard the Open Access in transmission is concerned the same has been allowed earlier. However, in so far as Open Access in distribution is concerned, the law envisages introduction of such Open Access in phases with due consideration of the operational constraints and existence of cross subsidy between consumer categories.
Requirements Under The Electricity Act
In terms of the Electricity Act, the central transmission utility (Power Grid Corporation of India Limited) and the state transmission utilities along with every person licensed to distribute electricity under the Electricity Act are obligated to provide for Open Access. Open Access can be availed by a Supplier or an End User. A Supplier or End User desirous of utilizing Open Access may approach the respective State Electricity Regulatory Commission ("SERC") for obtaining permission for intra-state Open Access (i.e. within the states) or the Central Electricity Regulatory Commission ("CERC") in the event they are desirous of obtaining inter-state Open Access (i.e. between the states). The Supplier or End Users must meet the minimum criteria provided by the SERC or CERC and in the event the Supplier or End User has met the basic criteria and subject to the available capacity of the transmission/distribution licensee, the End User and the Supplier are granted Open Access. Open Access can be sought for three distinct time periods i.e. for short term (below 3 months), medium term (3 months to 3 years) or long term (12 years to 25 years).
On receipt of the license from the SERC or CERC, the End User or Supplier may avail Open Access as per the terms and conditions specified in the license. The End User or Supplier however, is liable to pay all charges in relation to the Open Access, including connectivity charges, transmission charges, transmission losses, wheeling charges, cross subsidy surcharge state load dispatch centre charges and regional load dispatch centre charges.
Need For Open Access
With the power distribution companies (the "Discoms") under heavy debt and losses, the Indian power sector is facing a crisis, the brunt of which is being faced by the End Users. Power supplied through Discoms is often unreliable and causes anumber of problems for smooth functioning of the industries. It, therefore becomes necessary for the industries to have an alternate source of power which is possible through Open Access to ensure better quality and reliability of power for smooth functioning of their assets.
Open Access can therefore theoretically provide a legitimate alternate to the Discoms and provide the End Users a direct connection to the Suppliers, ensuring continual and uninterrupted electricity. The Suppliers are further assured that their generation capacity has been used at its peak efficiency with a constant demand for electricity. Open Access therefore is a win-win situation for the Supplier and the End-User.
Competition is a corner-stone of the Electricity Act. Open Access has been conceived as an important tool to introduce competition in the electricity sector and to ensure choice to the End Users and the Suppliers of electricity. Open Access provides for competition between the Discoms and the Suppliers and also between multiple Suppliers. The End User therefore has the option of choosing the best option among various alternates.
Road Blocks To Open Access
Although the Electricity Act introduced the concept of Open Access, there is still no actual implementation of Open Access across India and the concept of the Open Access still faces multiple impediments, some of which are as under:
Unfavorable Regulation – The major impediments to successful implementation of Open Access is the nature of regulation with each SERC having the power of regulating intra state Open Access through its own regulation with divergent multiple agencies under its control. Keeping in mind the interest of the Discoms, SERCs are often reluctant to act in the manner which will boost Open Access to achieve the desired results.
Lack of Infrastructure – Open Access is the responsibility of transmission and distribution licensees under the Electricity Act. Open Access is therefore carried out in the current existing transmission capacities of such licensee. The Open Access however is granted on the availability of spare transmission facilities by the licensee. Since such facilities are limited, the complete roll out of Open Access is hampered.
Protectionism – It is clear from the decisions of the SERC that the SERC are indeed attempting to protect the Discoms from competition in Open Access. There are multiple reports of SERC's restricting Open Access by not allowing inter-state Open Access (as in the case of Gujarat) or refusing the right of Open Access from electricity exchanges (as in the case of Maharashtra). Such protectionism of Discoms by the SERC is in stark opposition to the object of free competition under theElectricity Act and is a major roadblock for the successful implementation of Open Access.
Cross Subsidy – SERC is vested with the powers to levy 'cross subsidies'. The cross subsidies levied by the SERC and the distribution licensee are in addition to the wheeling charges and transmission losses and has to be borne by the End Users of the Open Access. The cross subsidy therefore, is a barrier for entry and increases costs associated with Open Access and may make it financially unviable for the End Users to procure electricity from the Suppliers. In effect, a cross subsidy is a negative incentive to Open Access.
For further information, please contact:
Shisham Priyadarshini, Partner, Rajani Singhania & Partners
shisham.priyadarshini@rsplaw.in
Amish Shroff, Rajani Singhania & Partners
amish.shroff@rsplaw.in
Kapish Mandhyan, Rajani Singhania & Partners
kapish.mandhyan@rsplaw.in
