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Power Trading Legal Issues May 6, 2003

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Title: Power Trading Legal Issues May 6, 2003


1
Power TradingLegal IssuesMay 6, 2003
  • Hemant Sahai
  • Senior Partner

2
Outline
  • Concepts
  • Reforms
  • Existing legal and regulatory framework
  • Electricity Bill
  • New Business opportunities

3
Concepts
  • Power Trading
  • Purchase of electricity for re-sale thereof
  • Open Access
  • Considered and adopted in a number of countries
    and can either be viewed as a policy goal or a
    transition mechanism on the way to introduction
    of retail competition
  • Non-discriminatory access to the regulated
    bottleneck monopoly network facilities i.e. the
    transmission grid or distribution system by bulk
    suppliers, consumers or generators.
  • The essential characteristic is that of
    introducing competition in the supply of
    electricity, though in a limited manner.
  • Better utilization of the transmission assets
  • Wheeling surcharge
  • Use of TD system for conveyance of electricity
    on payment of charges

4
Concepts
  • Captive Power Plants
  • Have been promoted under section 43 of the ES Act
  • Main reason was the inability of SEBs to meet
    demand of industrial consumers
  • Many states provided attractive terms for
    wheeling to sister companies and for banking
    electricity
  • In essence a form of indirect competition
  • The Electricity Bill allows CPPs open access for
    carrying electricity to the destination of its
    use
  • IPPs
  • Indirectly stimulated competitive conditions in
    generation business, via
  • Performance benchmanrking with state-owned
    Gencos
  • Providing a level playing field to IPPs though
    higher rate of return incentives
  • The Bill allows setting up of generating stations
    without obtaining licence

5
Reforms
6
Existing Legal Regulatory Framework
  • Union Laws - The Indian Electricity Act 1910,
    The Electricity (Supply) Act 1948, The
    Electricity Regulatory Commissions Act 1998
    (ERCA)
  • State Laws -State Electricity Reform Acts
  • Orissa,
  • Haryana,
  • Andhra Pradesh
  • Uttar Pradesh
  • Karnataka
  • Rajasthan
  • Delhi
  • Madhya Pradesh
  • Currently, generating companies have to sell
    power to SEBs under section 43 of the ES Act or
    any other person with consent of competent
    government.

7
Existing Legal Regulatory Framework
  • GoI guidelines, 1992 - utilities to either buy
    the electricity generated by such generators at a
    reasonable price or allow third party sale by
    charging a reasonable wheeling tariff. The
    implementation of the guidelines was however left
    to the discretion of the States.
  • Some evidence of third party sales having being
    examined by a few of the State Electricity
    Regulatory Commissions.
  • Section 22 (1) (d), the ERC Act for the first
    time explicitly recognised competition as a
    policy instrument for achieving economic
    efficiency
  • Electricity Bill 2003 translates the stated
    policy goal of competition into explicit
    provisions in an intended legislation.

8
Electricity Bill
Bill to consolidate the laws relating to
transmission, distribution, trading and use of
electricity and generally for taking measures
conducive to development of electricity industry,
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 Ref LOK SABHA REVISED LIST OF
BUSINESS MONDAY, APRIL 7,2003/CHAITRA
17,1925(SAKA) Matters under Rule 377
Legislative Business Bills for consideration and
passing
9
Electricity Bill
  • Some important definitions
  • Electricity Trader - person who has been granted
    a licence to undertake trading under Section 12
    2(26)
  • Person - a company or body corporate or
    association or body of individuals whether
    incorporated or not or artificial juridical
    person 2(49)
  • Open Access - 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 2(47)
  • Trading - purchase of electricity for resale
    thereof and the expression "trade" shall be
    construed accordingly 2(71)

10
Electricity Bill
  • Wheeling -the operation whereby the distribution
    system and associated facilities of a
    transmission licensee or distribution licensee,
    as the case may be, are used by another person
    for the conveyance of electricity on payment of
    charges to be determined under section 622(76)
  • Licensed Activity No person shall undertake
    trading unless authorised by a licence issued
    under section 14, or exemption under section
    1312
  • Licensing Appropriate Commission empowered to
    grant license for undertaking trading Discom
    licensee does not require license to undertake
    trading 13
  • Excluded Categories not permitted to engage in
    Trading
  • NLDC, RLDC SLDC are not empowered to engage in
    Trading 26,27 32
  • CTU, STU Transmission Licensee 38,39 41

11
Electricity Bill
  • Some Notable provisions
  • Development of market Appropriate Commission
    under a duty to endeavour to promote the
    development of a market (including trading) in
    power in such manner as may be specified 66
  • Power to make Regulations Central Commission
    State Commission empowered to regulate the
    development of market in power including trading
    (specified under section 66) 173 176
  • Electricity Trader Appropriate Commission
    empowered to specify the technical requirement,
    capital adequacy requirement credit worthiness
    electricity trader is under a duty to discharge
    duties as specified 52
  • Market domination- Consumer Interest Appropriate
    Commission empowered to issue directions to
    licensee or a generating company if any
    adverse effect on competition in electricity
    industry is caused by
  • any agreement
  • Abuse of dominant position
  • any combination 60

12
Electricity Bill
  • Captive Plants Right to open access for the
    purposes of carrying electricity to the
    destination of use, subject to availability of
    adequate transmission facility as determined by
    CTU or STU 9
  • CTU STU Obliged to provide non
    discriminatory open access to their systems to
    Licensee, Genco or Consumer 38 39
  • Distribution Licensee
  • Obliged to provide non discriminatory open
    access to its system
  • Person situated within area of supply would be
    able to take supply from Genco or any other
    licensee, other than Distributin Licensee
  • Open access to be introduced in phases subject
    to conditions viz. cross subsidies operational
    constraints specified by State Commission
  • Open access may be allowed before elimination of
    cross subsidies on payment of surcharge ( in
    addition to wheeling charge ) 42

13
New Business Opportunities
  • There is thus a clear trend evident in the policy
    framework, which has gradually evolved from
    monopoly generation and supply to permitting
    competition in these activities.
  • The wires business in the monopoly vertically
    integrated supplier model, other functions,
    including generation and supply are amenable to
    existence of multiple players

14
  • Thank you
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