Govt proposes amendments to Electricity Rules, 2005 to make power sector financially sustainable

The proposed rules are likely to result in timely tariff revisions by state electricity regulatory commissions.

India proposes to introduce rules to reduce the gap between the cost of power and the tariff approved by states and to bring down the regulatory assets in the power sector, aimed at financial sustainability of the power sector, according to the draft amendments to the Electricity Rules, 2005 issued by the government.

The move may in the long run lead to higher price of power for consumers but can help the beleaguered power distribution companies (discoms) reduce their mounting losses. Typically, the discoms have struggled with high regulatory assets which represent costs that are deferred for recovery through future tariff revisions. The proposed rule will ensure time-bound liquidation of regulatory assets.

Other than this amendment, the draft includes three more amendments as per the notification issued late June 28 by the Ministry of Power (MoP). Moneycontrol has a copy of the notification. The second key amendment includes capping the open access charges levied by states. The third asks for doing away with the need for a transmission licence to connect large consumers with the grid. And the fourth is about preventing “frivolous litigations” before the Appellate Tribunal for Electricity (APTEL) by paying at least 50 percent of the payable amount upfront while filing an appeal against any order issued by the appropriate commission.

The ministry has now sought comments and suggestions from stakeholders on the proposed amendments.

Power tariffs likely to rise annually in the coming years

The government has proposed that any gap between the approved Annual Revenue Requirement (ARR) and the estimated annual revenue from approved tariff will be capped at 3 percent of the approved ARR. At present, there is no such limit and such gaps grow as wide as 20 percent or more in some states.

The tariffs should be cost reflective, the amendment says. “It has been observed that in many states there is large gap in the approved ARR and the estimated revenue on approved tariff. To discourage such practice there is s need to make statutory provisions to avoid such gap. It is also imperative that liquidation of any such gaps in the revenue required and the estimated approved tariff is done in a time-bound manner,” the MoP said in a note on the proposed amendments.

The notification also states that such gap, along with the carrying costs at the base rate of the late payment surcharge, shall be liquidated in maximum three equal yearly instalments from the next financial year.

In states where such gap or regulatory asset already exists in discoms under the current notified tariffs, it will have to be liquidated in maximum seven equal yearly instalments starting from the next financial year.

These proposed rules are likely to result in timely tariff revisions by state electricity regulatory commissions (SERCs). It would also make an annual increase in power tariffs across most states inevitable in order to ensure proper financial health of the discoms.

Capping various open access charges

Open Access is one of the key features of the Electricity Act, 2003, but its implementation has been slow due to high “open access charges” levied by states. At present, these charges are being arbitrarily levied by states in the absence of a framework, which becomes prohibitive for the commercial and industrial sector (C&I) for offtake of electricity, especially renewable energy.

“Open Access charges need to be reasonable throughout the country. So, it has been proposed to rationalise such charges by prescribing a methodology for computing various open access charges. Basically, we are capping various open access charges so that no state can charge in excess of the normative rate,” Alok Kumar, secretary, Ministry of Power, told Moneycontrol.

The notification stated, “The charges for using State Transmission Utilities (STU) network by the consumers availing short-term open access shall not be more than 110 percent of the charges levied on consumers using STU network on long-term basis (not less than seven years).”

Besides, it stated that the additional surcharge levied on any open-access consumer shall not be more than 50 percent of the wheeling charges for that category of consumers.

“Wheeling charge will be calculated by dividing the Aggregate Revenue Requirement towards wheeling by the energy wheeled during the year," the draft amendment stated.

No transmission licence to connect Green Hydrogen, RE or ESS projects with the grid

The proposed rule states that anyone setting up a captive generating plant or an energy storage system (ESS) or a consumer having a load of not less than 25 megawatt (MW) in the case of Inter-State Transmission System (ISTS) and 10 MW in the case of State Transmission System (STS) shall not be required to obtain a licence under the Electricity Act for establishing, operating or maintaining a dedicated transmission line to connect to the grid.

“We received requests from stakeholders to allow large consumers such as Green Hydrogen manufacturers to establish, operate or maintain dedicated transmission lines with ESS without the requirement of licence. Of course, provided they comply with the regulations, technical standards, guidelines and procedures issued under the provisions of the Electricity Act, 2003,” Kumar said.

“This amendment has been proposed keeping in mind the green hydrogen hubs or large-scale green hydrogen manufacturers that would come up in the coming years,” he said.

Pay at least 50 percent for an appeal at APTEL

The government has proposed that any person while filing an appeal before Appellate Tribunal for Electricity (APTEL) will have to pay at least 50 percent of the payable amount as per the order of the appropriate commission.

“Provided that in case of matters related to ‘Change in Law’ as defined in Electricity (Timely Recovery of Costs due to Change in Law) Rules, 2021, such payment shall be, 75 percent of the payable amount as per the order of the Appropriate Commission,” read the notification.

However, it also states that in case any excess amount is paid by the appellant to the other party(ies) at the time of filing the appeal, the amount shall be refunded along with the interest at the base rate of late payment surcharge within 90 days from the date of the order passed by the APTEL.