Regulation of electricity utilities – sales of power

Approval to sell power

What authorisations are required for the sale of power to customers and which authorities grant such approvals?

Sale and distribution of power are bundled activities and hence, if a developer has obtained a distribution licence for distribution of electricity for a certain area, it has approval to sell power as well to both commercial and domestic consumers, and no specific authorisations are required.

Further, generating companies can also sell power directly to a bulk consumer using open access or through dedicated transmission lines. The consumer, however, is not allowed to further sell the power to other consumers. Licensed traders are also authorised to supply and trade in power. However, we should highlight that the Proposed Electricity Act Amendments contemplate the segregation of the supply (sale) and distribution businesses (operating the distribution network) and the introduction of multiple supply licensees and the restriction of having only one distribution licensee for a given area.

Power sales tariffs

Is there any tariff or other regulation regarding power sales?

The SERCs issue multi-year tariff regulations to regulate the procedure for determination of power sales tariff (comprising fixed charges and energy charges (which are usage-based)) of distribution licensees for various classes of consumers, the categorisation of which depends on the type of entities that require the electricity and the voltage levels at which the electricity is to be distributed. For instance, a separate tariff is determined for low-tension (LT) consumers (which includes domestic, residential and commercial units) and high-tension (HT) consumers (which includes industries and railways). The HT and LT classes of consumers are further subdivided depending on the type of entity to which electricity is to be supplied (for instance, HT 1A consumers include all manufacturing, industrial establishments and registered factories, while HT 1B tariff is determined for railways). The components and factors to be considered while determining tariff are similar to the components of generation tariff and include return on equity capital, interest on debt, interest on working capital, depreciation, power purchase cost and operation and maintenance expenses, albeit with respect to the distribution business. The proposed amendments to the Tariff Policy envision a two-part tariff with capital costs being reflected in the fixed charges and the energy charges reflecting the average purchase price of power with administrative margins.

With a view to promoting competition and also to bolster the segregation of content and carriage philosophy, the Proposed Electricity Act Amendments contemplate that while the tariff to be charged by the distribution licensee will be determined by the SERC, the tariff to be charged by a supplier will be market determined, subject to a SERC-specified ceiling. That being said, the Proposed Electricity Act Amendments also enable the supplier to charge a tariff higher than the specified ceiling after obtaining regulatory approval.

Rates for wholesale of power

Who determines the rates for sales of wholesale power and what standard does that entity apply?

In furtherance of the multi-year tariff orders issued by each SERC for distribution tariff for various types of HT and LT consumers, distribution licensees file their respective petitions before the SERC for their area of supply. Such tariff petitions typically include true-up of the tariff based on the previous year (ie, specific adjustment required on a case-by-case basis in relation to units sold, AT and C losses, etc), review of the current year’s performance and approval of the aggregate revenue requirement of the distribution licensee for the upcoming year. In reviewing the aggregate revenue requirement, the SERC takes into consideration factors such as cost of procurement of electricity (through long-term contracts or short-term procurement from the open market, in case of shortage) and, based on such review, the commission may alter the tariff mentioned in the multi-year tariff order for such distribution licensee.

Public service obligations

To what extent are electricity utilities that sell power subject to public service obligations?

The Electricity Act sets out various obligations and duties of a distribution licensee, which include the obligation to provide open access to any applicant (subject to system constraints), the duty to develop and maintain a distribution system and commence supply within one month of request in the distribution licensee’s area of supply. The Supreme Court has stated in various judgments that there is no exemption from the universal service obligation of any distribution licensee under the Electricity Act and the licensee has a statutory duty to supply electricity upon application to any premises located in the distribution licensee’s area. One of the key reasons for the government’s decision to reform debt-ridden distribution licensees under the UDAY Scheme was to ensure that the distribution licensees are able to fulfil and perform their roles and functions under the Electricity Act effectively.