The Ministry of Power has issued the Draft Electricity (Amendment) Rules, 2023, to introduce changes to the requirement of transmission licenses for captive and bulk power consumers and capping the additional surcharge for open access consumers at 50% of the wheeling charges.
The amendments are expected to enhance the efficiency and transparency of the electricity sector.
The draft proposal will be open for stakeholder comments till July 28, 2023.
Dedicated transmission lines
Under Rule 22 of the amended Electricity Rules, a generating company or a person setting up a captive generating plant or an energy storage system (ESS) will no longer require a license to establish, operate, or maintain a dedicated transmission line to connect to the grid.
The same will apply to a consumer with a load of not less than 25 MW in the case of an interstate transmission system (ISTS) or 10 MW in the case of a state transmission system.
However, compliance with the regulations, technical standards, guidelines, and procedures issued under the provisions of the Electricity Act 2003 is mandatory.
The Ministry has also proposed a new rule that eliminates the requirement of a transmission license for large consumers, including green hydrogen producers, and ESS connecting through dedicated transmission lines.
According to the ministry, the industry, in their petitions, had requested a transmission license for bulk consumers, such as Green Hydrogen manufacturers, to connect to the ISTS.
A new category of consumers is expected to emerge in the country by enabling bulk consumers and ESS to operate dedicated transmission lines without a license.
The ministry expects it to lead to more affordable electricity and improved grid reliability.
Open access charges
Under amended rule 23, the ministry has introduced changes to calculating open access charges.
Open Access wheeling charges would be computed based on the aggregate revenue requirement towards wheeling divided by the energy wheeled during the year.
Furthermore, the charges for consumers availing short-term open access and using the network of state transmission utilities will not exceed 110% of the charges levied on long-term users.
In terms of additional surcharge, the rule states that the surcharge imposed on any open access consumer should not exceed 50% of the wheeling charges applicable to that consumer category.
However, for long-term open access consumers, the additional surcharge will be gradually eliminated within five years from the date of granting open access. “Long term” refers to a period of not less than seven years.
According to the Ministry, open access is an important aspect of the Electricity Act 2003, but its implementation has been limited due to high charges. The issue of expensive open access charges has been a topic of discussion within the industry, as it hinders the widespread adoption.
Many have expressed concerns about the high rates imposed by different states. To address this, it is necessary to establish reasonable open access charges nationwide. This will enable bulk consumers, such as industries, to access electricity through open access at affordable rates.
To achieve this, new rules are proposed to define a methodology for calculating various open access charges and make them more rational.
ARR and annual revenue
Under the proposed amendment to Rule 24, the ministry emphasizes that the approved tariff must be cost reflective, ensuring no gap exists between the approved Annual Revenue Requirement (ARR) and estimated annual revenue from the approved tariff, except in cases of natural calamities.
If any gap does arise, it should not exceed 3% of the approved ARR.
This gap and carrying costs at the base rate of Late Payment Surcharge specified in the Electricity (Late Payment Surcharge and Related Matters) Rules, 2022, should be settled in a maximum of three equal yearly installments from the next financial year.
Moreover, any gap between the approved ARR, estimated annual revenue from the approved tariff, and the applicable carrying costs should be cleared within a maximum of seven equal yearly installments starting the next financial year.
To ensure the financial stability of the power sector, it is crucial to have tariffs that reflect the actual costs and allow for the recovery of prudent expenses, according to the ministry. However, many states have a significant disparity between the approved ARR and the estimated revenue from approved tariffs.
This practice needs to be discouraged, and there is a need for statutory provisions to prevent such gaps from occurring. Additionally, it is essential to establish a time-bound process for addressing and resolving any revenue gaps or regulatory assets.
New rules are being proposed to minimize such gaps, except in exceptional circumstances, and to facilitate the timely liquidation of any existing gaps.
Under Rule 25, any person appealing against an order made by the Appropriate Commission under the Act must pay at least 50% of the payable amount as per the commission’s order while filing an appeal before the Appellate Tribunal for Electricity.
However, for matters related to “Change in Law” as defined in the Electricity (Timely Recovery of Costs due to Change in Law) Rules, 2021, the payment required will be 75% of the amount payable.
Upon the final order of the tribunal, any excess amount paid by the appellant to the other parties during the appeal process shall be refunded, along with interest at the base rate of Late Payment Surcharge specified in the Electricity (Late Payment Surcharge and Related Matters) Rules, 2022, within 90 days from the date of the order passed by the Appellate Tribunal for Electricity (APTEL).
However, if the APTEL or the Supreme Court deems the appeal to be frivolous and without any compelling content, the rate of late payment surcharge will be 18%.
The Supreme Court recently emphasized the need to address non-essential litigations, their impact on consumers, and the importance of timely payment of dues. The Supreme Court had advised the ministry to establish a mechanism to ensure timely payments and discourage unnecessary litigations.
In line with this judgment, a new rule is proposed to discourage frivolous litigations before the Appellate Tribunal for Electricity and higher courts. The rule suggests requiring upfront partial payment of dues before filing an appeal to discourage such unnecessary litigations.
Earlier this year, the ministry amended the Electricity Rules regarding the surcharge imposed on open access consumers. As per the revised rules, the surcharge levied by state commissions on open access consumers should not exceed 20% of the average cost of power supply.
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