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Thinking about Policy & Regulations in the Power SectorTirthankar Nag

1Did Consumers or Industry Make the Right Choice?2Exercise: The Qwerty KeyboardAgenda3Why Regulation?Regulating the Infrastructure SectorPower SectorIndustry is moving towards more regulation4The US HistoryTill World War I: Tight RegulationWorld War I Great Depression: Less Regulation1932 1970: More Regulation1970 2008: Less regulation2008 Onwards: More Regulation

The Indian HistoryTill 1990: Less regulation, but government control1990 Onwards: More Regulation, less control

Regulation5To regulate: to control, especially by rules, administer, conduct, direct, govern, manage, monitor, order, organize, oversee, restrict, and supervise.

Regulation: rule, in accordance with rules or conventions, by law, commandment, decree, dictate, directive, edict, law order, requirement, restriction, rule, and statute.

Oxford DictionaryWhy are Regulatory Interventions are Required ?6Preventing Market Failure & Balancing Interests

Objectives of RegulationEconomic efficiencyConsumer protection Social justiceSecurity of supplyEnvironmental protectionRegulatory Failure Can Destroy CompaniesCase of Power Sector in California - 20007Rising wholesale pricesInadequate SupplyHigh usageCPUC keeps low retail prices during shortageAB 1890: Price ControlConsumer ProtectionCPUC No long term contractsHigh Risk SystemFear of self dealingDivestiture of GenerationForm Competitive MarketsLow RainfallGrowing DemandLimited CapacityCostly Emission PermitsNon PaymentGenerators OfflineUtilities not credit worthyFinancial Crisis for UtilitiesSCE Near BankruptcyPG&E BankruptcyState Short Term PurchasesState Revenue BondsState long term contractsElimination of direct accessRegulatory FailureWhat can be regulated?8PricingPerformanceLevel of competitionLevel of integrationOwnershipSector DevelopmentTypes of Regulation9Command and controlSelf-regulationIncentive-based regulationOther Formsregulation by contracttrading permitscompetition laws A Snapshot of Regulatory Concepts10Regulatory InterventionMarket Driven Non Market DrivenRegulatory GovernancePricing ModelsRegulatory IssuesBalancing Interests

Agenda11Why Regulation?Regulating the Infrastructure SectorPower SectorIndia, JUSCOUnited Kingdom, United Utilities: North West Water, NorwebFrance, Suez Lyonnaise des Eaux: Lyonnaise des Eaux, TractebelGermany, E.ON: E.ON Energie, GelsenwasserChile, Enersis: Chilektra, Agua Potable de Lo CastilloAustralia, TXU Australia Holdings: Eastern Energy, Westar-Kinetik EnergyArgentina, SEMPRA Energy: Empresa Distribuidora de Energia Atlantica, Camuzzi Gas Pampeana, Camuzzi Gas del SurIndia, Reliance ADAG. BSES, BSES TeleCom: OrissaBrazil, Eletropaulo Metropolitana Eletricidade de Sao Paulo:Eletropaulo TelecomunicacoesEstonia, Eesti Energia: Eesti Energia Televirk Spain, Endesa: AUNARepublic of Korea, Korea Electric Power Company:PowercomMalaysia, Tenaga Nasional Berhad: FibrecommIndia, Reliance ADAGBrazil, Companhia Forca e Luz Cataguazes-Leopoldina: Energipe, Teleserv, TelecaboMany utilities cover 2 sectorsOnly a few - Vivendi and Suez Lyonnaise des Eaux cover 4 sectorsSource: World BankLegend: Country, Parent company: SubsidiariesGlobally Infrastructure Utilities are Diversifying12Infrastructure Regulatory Bodies in IndiaElectricity CERC/ SERCs RegulatorsAPTEL Natural GasPNGRBAPTEL (additional Bench) TelecomTRAI (notified Broadcasting)TDSAT PortsTAMPAirportsAERAPosts/ Coal - on the cards

13No separate regulator as yet for:CoalRoadsNHAI acts as the regulator as well as operatorRailwaysRailways act as operator and regulatorPostsProposal exists

1415Recent TrendsSeparation of carriage and content businessCarriage is mostly natural monopoly open access requirementsContent is amenable to competitionEmergence of uniform concession frameworksShift from Command and Control and focus on regulatory reform and governance Setting benchmarked performance based prices Emergence of long term pricing regimeShift towards participatory regulatory processAgenda16Why Regulation?Regulating the Infrastructure SectorPower SectorEvolution of Policy & Regulatory Landscape

Reforms2003 ActCompetitionAccess17Evolution of Structural ChangesPower generationTransmissionDistributionRetailState owned monopoliesPre -1990sPower generationTransmission & System OperationDistribution & RetailPower TradingVertical industry disaggregationPost -1990sSelective open accessGrowth of captive generationNow & Going AheadPower generationTransmissionDistributionTradingFull Open accessIndependent System OperatorStrong Market OperatorsGrowth of captive generationWeak Market OperatorsRetailFranchiseePowerEERetail Companies18#IndonesiaBrazilChinaTurkeyRussiaPolandFranceCanadaGermanyUKAustraliaUSMarket StageIndustry MaturityOPENINGDEVELOPINGMATUREIndustry Maturity Where is India ?19IndonesiaBrazilChinaTurkeyRussiaPolandFranceCanadaGermanyUKAustraliaUSMarket StageIndustry MaturityOPENINGDEVELOPINGMATUREIndustry MaturityIndia (1991)India (2003)India (2012)20Exercise: Dealing with Many Stakeholders21PolicyMinistry of PowerCentralPlanningRegulations GenerationTransmissionSystem OperationsDistributionTradingAppealStateCentral Electricity AuthorityCentral Electricity Regulatory Commission (CERC)Central Generating StationsCentral Transmission UtilityNational/Regional Load DispatchInter-state Trading LicenseeAppellate TribunalState GovernmentState Electricity Regulatory Commission (SERC)State Generating StationsState Transmission UtilityState Load Dispatch CentreDistribution LicenseeIntra-state Trading LicenseePrivate/ JointInternal / IPPsInternal / Transmission CompaniesLicensee/ FranchiseesInter/Intra-state Trading LicenseePower exchangesSystem Control / ALDCFinancingREC / PFCInternal / State FinancesInternalHR DevelopmentNPTI, UPESInternalInternalInternalExercise: Dealing with Many Stakeholders22INTERESTIMPORTANCELOWHIGHHIGHLOWKeep SatisfiedKeep EngagedMinimaleffortKeep InformedSimplistic Regulatory Cost StructureBulkSupplyTranscoNetworkChargesO&MReturnsLossesDISCOMGENCOFuelO & MCapitalBulkSupplyTRANSCOO & MReturnsLossesNetworkCharges+CostLossesReturns23Date23GenerationTransmissionDistributionCost CoveragePower UtilityGeneration 1.97 Transmission Cost 0.31 Loss 0.05

Average Cost to Distribution 2.33Distribution Cost 2.00Distribution loss 0.84

Average CoS 5.1794%Cost Structure: Hypothetical UtilityAverage Revenue 4.8824Date24Understanding Cost Components25Cost ItemsRs./kWhPower Purchase2.51Fuel0Employee0.36O&M0.04Interest0.16Depreciation0.1Admin & General0.02Others0.03Average Cost of Supply3.23Average Revenue3.27Gap0.04WBSEDCL, 2009-10Cost Composition, All India, 2011-12Source : Annual Report 2011-12, Planning CommissionFinancial Performance of DISCOMS: 201226Additional Services by Energy CompaniesServices offered by Direct Energy

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