LITERATURE REVIEW ON OPEN ACCESS IN ELECTRICITY

INDUSTRY

 Rethinking Electricity Deregulation: Does Open Access Have It Wired – Or

Tangled? Clyde Wayne Crews [June 24, 1999]

He argued that Open access to the power grid, was intended to mean that every commercial,
residential or industrial customer would have a choice of any electricity provider, while the local
utility would be required to distribute the new provider’s electricity. That meant more competition
and a restructuring of the existing system and norms. Such Reform required that the regulated
component should shrink and a more substantial and robust electricity competition could emerge
if more precious years weren’t wasted trying to mandate it.

 Central Electricity Regulatory Commission (C.E.R.C) final regulation Paper on

[Open Access in Inter-state Transmission] [August 2003]
Central Electricity Regulatory Commission (CERC) issued the final regulations for providing open
access in inter-State transmission after taking into consideration numerous suggestions and
comments received from the stakeholders in response to the draft regulations posted on its web
site on 2.12.2003. The new Electricity Act, 2003 mandates CERC to specify regulations for
transmission pricing as well as terms and conditions for regulating open access in inter-State
Transmission.
Some of the key highlights of the final regulations for open access in inter-State Transmission are
as follows:
1. Transmission customers will be divided into two categories, namely, long term customers
and short term customers.
2. A long term customer will be allowed access based on transmission planning criteria
stipulated in the Indian Electricity Grid Code. Long term customer will have the right to
use the transmission system.
3. Access to short term customer shall be allowed subject to availability of transmission
capacity if request can be accommodated by utilizing inherent design margin, margin
available due to variation in power flow and margin available due to in-built spare capacity.
4. Allotment priority of long term customers shall be higher than that of short term customers.
If the transmission capacity reservation sought by short term customer is more than the
availability in a particular transmission corridor, at a point of time, the RLDC concerned
shall invite bids. The floor price of the bids shall be as per the formula specified in the
regulations. Bid based reservation shall commence after 90 days.
5. The floor price for short term customer shall be about 1/4th rate chargeable from long term
customer. The floor rate shall be displayed by each transmission service provider on web
site in Rupees per MW per day.
6. The minimum transmission charges payable by short term customers will be for one day
and in multiple of whole days thereafter.
7. Regional Load Dispatch Centers shall jointly formulate a detailed procedure for reservation
of transmission capacity including bidding procedure for short term customers within 45
days.
8. Within a category, there shall be no discrimination between an open access customer and
self-use by an integrated entity like State Electricity Board.
9. Nodal Agency for arranging long term access shall be the Central Transmission Utility
(POWERGRID), if its system is used, otherwise the nodal agency shall be the transmission
service provider in whose system the drawl point is located.
10. All customers directly connected to POWERGRID network shall have to pay reactive
energy charges calculated as per the existing scheme.
11. All transmission customers directly connected to POWERGRID network shall be required
to install special energy meters capable of time differentiated measurement of active energy
and voltage differentiating measurement of reactive energy.
12. All users shall pay average energy loss in the transmission system as estimated by the State
and Regional Load Dispatch Centre concerned. The energy loss shall be adjusted in kind
i.e. average loss in transmission shall be compensated by additional injection at the
injection point.
  Open Access: Methods for Calculation of Cross-Subsidy Surcharge and Assessment
of the Financial Impacts on Utilities, Daljit Singh, Visiting Research Fellow, Prayas
Energy Group, Pune, [February 17, 2005]

The paper discusses the methods for calculation of Cross-Subsidy Surcharge and also suggests that
by broadening the focus to include factors other than the surcharge that affect the revenue loss
during the transition to open access the conflict between making open access attractive and
protecting the financial health of the licensees can be reduced. The level of surcharge, method of
its calculation, and impact on the utility are major issues. This paper takes an overview of the
recommendations made by various parties regarding the calculation of the surcharge, and then
discusses some concerns about the application of these recommendations. This discussion is
followed by an assessment of the likely revenue loss for the licensees and the extent to which the
various recommended methods compensate the utilities for the revenue loss. The paper points out
the need for re-focusing to address broader concerns, if the transition to competition is to be made
a little easier. The surcharge will play a critical role in managing the transition to competition as
the ERCs try to balance the conflicting requirements of: (1) making open access economically
attractive for HT consumers; and (2) protecting the financial health of licensees.

 Cross subsidy reduction can Open Access to opportunities, Amulya Charan, MD,
Tata Power Trading Company Limited and Rupa Devi Singh, MD & CEO, Power
Exchange India Limited, Energética India, [JULY/AUGUST 2009]

Cross subsidy is supposed to take care of the lost revenue of the Discoms when they lose Open
Access Customers to competition. At the time of enactment of EA 2003 it was envisaged that this
Cross-subsidy will be brought down to zero in five years’ time which was later brought down to
20% of the initial amount. As a matter of fact there is no case for this cross subsidy as all the
Discoms are woefully short of power. If one customer moves out then the power so saved is
immediately sold to other available customers who are waiting on the wings. There is, therefore,
no case for cross subsidy. Still in most of the cases high cross subsidy charges is applicable making
it difficult for the eligible customer to exercise his choice of supplier thus defeating the very
purpose of creating this provision. Rupa Devi Singh, MD & CEO of Power Exchange India
Limited suggests that cross subsidy, being charged by distribution companies appear to be a
constraint towards development of a competitive power market. Shift from completely regulated
and state run distribution company based scenario to Open Access practices is a major change. To
bring this change it is important to implement them in steps, in that sense phasing out of cross
subsidy over a planned timeframe in line with the guidelines of the NEP and NTP is desired.

 Report of the Task Force on Measures for operationalizing Open Access in the Power
Sector [Published by The Secretariat for the Committee on Infrastructure Planning
Commission, Government of India][ May 2009]

As per Electricity Act 2003, the act mandates non-discriminatory open access to transmission and
distribution networks that would allow competing producers and suppliers to sell electricity
directly to bulk consumers. The National Electricity Policy 2005 and Tariff Policy 2006 also have
reinforced these provisions by specifying the principles for determination of surcharge on open
access with a view to enabling competition. Over the last two decades, most of the developed
countries have introduced such competition and some have gone right down to the level of
household consumers in providing a choice of suppliers. Besides efficiency improvements and
cost reduction, introduction of open access would create a market that would help increase
investment because the present market structure compelled producers to sell to monopoly utilities
alone. Despite the mandatory provisions of law, non-discriminatory open access to distribution
networks has failed to materialize. An inter-Ministerial Task Force was, therefore, constituted
under the chairmanship of Member (Power), Planning Commission, to examine the status of
implementation of the relevant provisions of law and policy, and to make recommendations on
measures for operationalization of these provisions.
The Report of the Task Force suggested that despite the physical and technical feasibility of open
access to distribution networks, not a single case of open access for bulk consumers had been
reported by any State. In fact, some States had even tried blocking open access to producers who
wish to sell electricity to licensees outside the State, thus compelling them to sell to state-owned
trading companies at significantly lower prices. In some cases, the electricity so procured by the
state-owned companies is sold to distribution companies of other states at much higher prices.
The Report was also aimed at bringing out intra-State trading that was being used for selling
electricity to deficit states at unregulated wholesale prices ranging upwards of Rs. 6 per unit, prices
at which no bulk consumer would buy electricity. This exposed consumers of deficit States to
exploitation by the utilities of surplus States. Such unregulated prices would have resulted in
unsustainable consequences for the financial viability of distribution utilities in the near future as
well as the orderly development of the power sector.
After consultations with various State Governments, Electricity Regulatory Commissions and
stakeholders, the Task Force concluded that open access for bulk consumers was an important
aspect of the Electricity Act and that despite shortages the enabling conditions for it must be
established. The task force had also recommended strengthening of the State Load Dispatch
Centers and noted that their independence was key to operationalizing open access. They also
recommended earmarking a certain part of the Centre’s discretionary allocation of 15 per cent of
the generating capacity of Central PSUs for direct sale to open access consumers.

The Report laid out the recommendations in two parts. The first part set the measures to be taken
by the Central and State Governments on which consensus was reached in the Task Force. It
required, inter alia, that the Central and States’ ERCs would be advised to comply with the
statutory requirements relating to open access in a time bound manner. The State authorities would
also be advised to ensure the requisite freedom in sale of electricity, thus enabling
operationalization of open access to promote a healthy development of the market where private
investment can be attracted, and ensure other enabling arrangements such as standby supplies at
affordable prices, metering and settlement. These recommendations were commended by the
Empowered Sub-Committee of the Committee on Infrastructure for consideration and approval of
the Government.

 Report of Second Task Force on Measures for operationalizing Open Access in the
Power Sector [Published by The Secretariat for Infrastructure Planning Commission,
Government of India][ April 2012]

Despite the mandatory provisions of law, non-discriminatory open access to distribution

networks had not materialized even after the efforts of the inter-Ministerial Task Force that was
constituted in 2008 for making recommendations on measures for operationalization of these
provisions. The progress was very minimal in adoption of its recommendations. Therefore, a
Second Task Force was constituted under the chairmanship of Member (Power), Planning
Commission in 2010 to examine the progress made in implementation of the recommendations
made by the previous Task Force and to recommend the further course of action for
operationalizing open access.

The task force after consultation with various State Governments, Electricity Regulatory
Commissions, state utilities, power producers, bulk consumers, and other stakeholders,
concluded that open access for bulk consumers was of utmost importance and conditions for it
should be established as early as possible. It recommended that the State Electricity Regulatory
Commissions should be advised by the respective state governments to immediately cease to
regulate the tariffs of all consumers of 1 MW and above in accordance with the Electricity Act.
They should only fix the wheeling charges and open access surcharge in respect of such
consumers. Under this new arrangement, bulk consumers would have the freedom to buy
electricity apart from their area distribution licensees, the electricity tariffs for such consumers
would be mutually agreed upon as they would not be regulated by the State Electricity
Regulatory Commissions.

The Task Force has also recommended earmarking a specified proportion of the Centre’s
discretionary allocation of 15 per cent of the generating capacity of Central PSUs for direct sale
to open access consumers. The task force concluded that such a move would help accelerate the
evolution of open access and competitive supplies for bulk consumers which, in turn, would
create a robust and sustainable market that would spur the flow of private investment in creation
of new capacity.

The Report of the Task Force also highlights the fact that intra-State trading be used for selling
electricity to deficit states at unregulated wholesale prices ranging upwards of Rs. 5 per unit,
which are very high by any standards. It was observed during 2009-10, that trading of high cost
power accounted for over 15% of the total cost of power purchased by the distribution utilities.
Such unregulated prices would have serious consequences for the financial viability of
distribution utilities as well as on the development of the power sector. The Report suggests that
there would be little adverse impact on the finances of the distribution companies in case the
bulk consumers are moved from regulated prices to market prices as required under the
Electricity Act. While shifting bulk consumers to market-based supplies, the distribution utilities
should gradually move away from purchasing high-cost unregulated power that their regulated
consumers cannot afford to bear.

 Open Access in Inter State Transmission System- 3rd Capacity Building Programme
for Officers of Electricity Regulatory Commissions, S.S. Barpanda, DGM, GM,
NRLDC (23 – 28 August, 2010)

Mr. S.S. Barpanda discussed the overview of Indian Power Market and the contribution of Open
Access to it. It provided an insight into the Open Access in inter-state transmission, Open Access
charges, scheduling of collective transaction through Power Exchanges, Real time congestion
management. The discussion also brought out issues prevalent with open access in transmission
such as transmission Pricing, transmission Losses, changing Role of Traders and many other
issues. The discussion also focused on maintaining and improving the reliability of the physical
system and simultaneously designing markets that complement reliability. It was also concluded
that System Operation was an important function and Grid security had highest priority.

 Open Access in Inter State Transmission System, S. K. Soonee, CEO-POSOCO

(2011)

He cited the significance of Open Access in Trading Market Evolution and described various
products of Trading, with details accounts of short term trade in various financial period. He also
discussed one major issue that had come up with the open access is Congestion. He cited that
congestion was inevitable because of inadequate transmission, inadequate reactive support,
weather diversity and seasonal demand variation. All these resulted in an uneven purchasing power
of utilities in a shortage scenario.

 The Open Access Consumer Deemed or Damned, Somit Dasgupta, Economic &
Political Weekly, [January 5, 2013]
On 30 November 2011, the Government of India came out with an advisory that all electricity
consumers who have a connected load of 1 MW and above (henceforth called big consumers) are
deemed to be open access consumers, whose tariff cannot be determined by the Regulatory
Commissions. Soon after this on 23 April 2012, a policy direction was also issued to the Central
Electricity Regulatory Commission (CERC) under Section 107 of the Act to frame regulations for
implementing open access. The question arises, can we kick-start open access? The answer is,
perhaps, no. Open access is one of the vehicles for enforcing competition. Thus, the larger question
is what comes first, competition or excess capacity? Will competition create capacity or is capacity
a necessary prerequisite for enforcing competition? Economic theory supports the latter view.
There should be a large number of buyers and sellers, and no individual should have any influence
on the price. This, unfortunately, is not the case in India where we have a case of excess demand.
Hence we should, perhaps, wait till such time that we develop spinning reserves. Thereafter, open
access will become a reality without any prodding from any quarter.

 Competition and Choice in Electricity Distribution in India, Daljit Singh, Centre for
Policy Research, [New Delhi, August 2016]

This paper examines the electricity market with three measures to fulfill these aims: (1) open-
access to the transmission and distribution system; (2) allowing multiple distribution licensees in
an area; and (3) proposed Electricity Act Amendments (EAA) for separation of carriage and
content in the distribution system for electricity. According to the Standing Committee on Energy,
27 SERCs had issued regulations for OA and allowed OA for consumers with loads greater than
1 MW. 23 of the 27 SERCs had specified transmission charges, wheeling charges and cross-
subsidy surcharges for OA. Open access to the transmission system sought by generating stations
has been granted in many cases, and has generally not been an issue of contention.

However, regarding open access for end consumers, success has been limited and most observers
of the sector express dissatisfaction (SCE, 2015; Kumar and Chatterjee, 2012:189). Until recently,
there had been very few cases of open access for end consumers. Two major reasons were:
(1) Denial of OA by the state load dispatch centre (SLDC); and (2) High charges (cross-subsidy
and other charges). But recently there has been greater interest in seeking open access by
consumers for two reasons: (1) Surplus capacity in many regions has led to power being available
in the market at low rates (Indian Express, 2016); (2) retail supply from renewable energy sources
has become economically attractive because of reduction in prices for energy from renewable
energy sources, and because cross-subsidy surcharge and other charges for supply from renewables
are much lower in several states as compared to supply from conventional sources.

The paper also raised the concerns of Discoms and Consumers regarding open access. The paper
argues that Discoms generally have the following concerns
1. Loss of consumers with high-paying capacity: High-consuming and paying consumers,
who subsidize other consumers, mostly in the residential and agricultural category, may
leave the grid. The cross subsidy surcharge (CSS) on open access consumers is supposed
to compensate the Discoms for this loss, and therefore Discoms focus on the size of the
CSS to ensure it compensates them fully.
2. Loss of load: As Discoms have procured most of their power through long-term PPAs,
they continue to pay capacity charges for the power even after consumers leave for another
supplier. The additional surcharge which is discussed later is expected to compensate them
for this loss.
3. Difficulties with Load Management: If large consumers opt for open access for short
periods and shuttle back and forth between grid supply and a competitive supplier, it can
become difficult for the Discoms to manage the load in an economically efficient manner.
Swings in load could create periods where there is either too much capacity available or
not enough.

The Consumers’ interest in opting for open access can be dampened by the following factors:
1. No Escape from Discom Service Quality Issues: Even for consumers opting for OA, the
supply comes over the Discom’s distribution network. For consumers who are serviced by
a Discom with a poorly performing network, there is no relief from poor service quality.
Not all OA consumers are on an independent feeder and therefore, they are subject to load
shedding just like other consumers of the Discom.
 2. High Charges for OA: In many states, cross-subsidy charge and other charges can be high,
making the economic incentive for opting for OA weaker.
3. Generators’ Preference for Bulk Sales: Generators prefer to sell in bulk in blocks of 50-
100 MW, while industrial loads are generally around 5 MW.
4. Difficulties in Coordination: An OA transaction where the generator and consumer are in
different regions involves dealing with two Discoms, two state transmission utilities, two
regional grids and the inter-regional grid. Consent for the transaction would be required
from the two SLDCs and the two RLDCs. Having the generator and the consumer in the
same regional grid could minimize these difficulties

 Open Access: Unfinished Agenda Of Power Sector Reforms In India, Tushar Giri
Nath, Indian Administrative Service, Commissioner For Collegiate Education,
Government Of Karnataka.

The paper showed the developments in India in the last seven years in the implementation of the
regulations and as to whether the results were optimal with respect to the policy objectives with
which they were designed. The aim was to find out the factors responsible for the limitations and
the design of regulations in their implementation which might have hindered the growth of power
generation in the private sector on one hand and has resulted in the low efficiencies in the sector
to give the advantage of lower cost of electricity to the consumer. The paper suggested certain
measures like the regulators should be obliged to pass an order on the disputes arising, when the
generator opts for open access and other party claims a violation of the existing agreement, in a
time bound manner. Also there should be close co-ordination between the centre and state
regulators to decide the upper and lower slab rates for exchange transactions as well as for short
term power procurement. The Central Regulator should have the authority to enable the
interruptions in the market when the rates are going beyond the price bands. The upper and lower
rates of short term procurements should make the transaction invalid. This would most likely stop
the exploitation of the state owned utilities by the unscrupulous energy traders and power
producers.
  Newer Challenges for Open Access in Electricity: Need for Refinements in the
Regulations, Daljit Singh, Brookings India, [April 2017]

The papers takes a look into the existing challenges of the Indian Power market and the reasons
for the limited success of open access. The paper broadly discusses the two major reasons, firstly,
some states have restricted OA transactions on export of power when there is a shortage, and
import of power when there is a surplus. Secondly, some of the OA charges such as the cross-
subsidy surcharge have been too high that OA becomes uneconomical.

A major part of the paper discusses more recent challenges involving the opportunistic use of OA
provisions, and how consumer choice should be provided. The use of OA provisions to get supply
from renewable energy (RE) sources enhances the problems as greater amounts of RE are added
to the resource mix.

The paper also provides a brief background on the provisions in the Electricity Act regarding OA
and the status of OA. Then the paper looks at two issues that have impeded OA: the actions of
state Governments to control OA; and the cross-subsidy surcharge (CSS) and its role in making
OA less attractive. One of the main newer challenges is frequent switching between the Discom
and market by OA consumers.

 Consultation Paper On Issues Pertaining To Open Access [August 2017]

The Ministry of Power, Government of India released a consultation paper on issues related to
open access. The Central Electricity Regulatory Commission (CERC) and the State Electricity
Regulatory Commissions (SERCs) had notified Open Access Regulations which facilitated
procurement of power through the Open Access route. Such Regulations have been developed in
line with the prevailing Legislative and Policy provisions as well as considering the operational
challenges faced by all stakeholders.

The introduction of the regulations has been largely successful in promoting competition with the
incumbent distribution licensees by providing consumers access to alternate sources of power.
However, a number of issues have come up in the operationalization of Open Access. These issues
impact all stakeholders - Open Access Consumers, Power Sellers, Distribution Licensees and non-
open access retail supply consumers of distribution licensees. To examine these issues along with
issues relating to amendments in provisions relating to captive Generating plants in the Electricity
Rules, 2005, a committee was constituted by CEA on the advice of Ministry of Power. The
Committee was headed by Member (E&C), CEA with members drawn from CERC, POSOCO,
MSEDCL, GUVNL, PFFCL and Chief Engineers from relevant Divisions of CEA. This
consultation paper is based on the report of the above mentioned Committee and decision held in
a meeting taken by Secretary (Power), GoI on 31.03.2017 wherein recommendations of this
Committee were deliberated.

The paper discusses five issues that are impacting a fair play between consumers and utilities on
open access/group captive –

(a) Frequent shifting of Open Access Consumers:

DISCOMs are unable to manage power procurement efficiently due to the high frequency of
shifting of Open Access consumers between DISCOM and other source of power

(b) Cross Subsidy Surcharge:

The Cross Subsidy Surcharge calculated by State Electricity Regulatory Commissions (SERCs)
and recovered from Open Access consumers is often insufficient to recover the entire loss of cross
subsidy on account of consumers procuring power through the Open Access route.

(c) Additional Surcharge:

Majority of power procurement by DISCOMs is long term in nature. Additional surcharge to
recover stranded cost on account of stranded Power Purchase Agreements (PPAs) and stranded
assets due to consumers procuring power through Open Access have in most cases not been
calculated appropriately. This has led to under recovery of power procurement expenses incurred
by DISCOMs.

(d) Stand-By charges:

The methodology adopted by DISCOMs for calculation and structuring of Stand-By charges is
inconsistent across States. Further, lack of periodic review of these charges can lead to revenue
loss for DISCOMs.
(e) Tariff design and rationalization:
Although two part tariff has been introduced in most States, the structuring of fixed and variable
components of tariff is not reflective of the actual proportion of fixed and variable cost liability of
the DISCOMs.

The paper proposes that tariff design should progressively reflect actual break-up between fixed
charges and variable charges as per the DISCOMs prudent and efficient cost structure. SERC’s
should develop a phased implementation plan over a three to five-year horizon to progressively
bring in fixed charges in retail tariff to reflect 75% -100% of the fixed cost liability of DISCOMs.
Consumer categories with low load factor (load factor less than 15%) such as Domestic Category
and Small Commercial consumers etc. may be partially exempted from fixed charges being linked
to actual fixed cost liability as such consumers shall not be able to absorb the tariff reflective of
actual fixed cost liability. For the states, where demand/fixed charge are recovering wheeling cost
incurred by DISCOMs (no separate tariff for recovering wheeling cost), Open Access consumers
should get credit for wheeling charges paid by them towards fixed/demand charges payable by
them subject to 100% fixed cost recovery. For example, if through fix/demand charges, Open
Access consumers are paying 80% of the fixed cost and including wheeling charges this recovery
becomes 110%, Open Access consumers should get 10% reduction in the fixed cost payable by
them.
 Section 3 National Electricity Policy and Plan.

National Policy on standalone systems for rural

Section 4
areas and non-conventional energy systems.

Section 9 (2) Captive generation.

Section 38 (2) (d) Functions of Central Transmission Utility.

Section 39 (2) (d) Functions of State Transmission Utility.

Section 42 Distribution Licensee and Open Access.

Section 61 (h) Tariff regulations.

Section 86-1(a)(c)(h) Functions of the State Commission.

REGULATORY FRAMEWORK
Provisions for Open Access & Renewable Energy in Electricity Act 2003.

Section 3. (1) (National Electricity Policy and Plan)

The Central Government shall, from time to time, prepare the National Electricity Policy and tariff
policy, in consultation with the State Governments and the Authority for development of the power
system based on optimal utilization of resources such as coal, natural gas, nuclear substances or
materials, hydro and renewable sources of energy.

Section 4. (National Policy on standalone systems for rural areas and nonconventional energy
systems)
The Central Government shall, after consultation with the State Governments, prepare and notify
a national policy, permitting standalone systems (including those based on renewable sources of
energy and other nonconventional sources of energy) for rural areas.

Section 9. (2) (Captive generation)

Every person, who has constructed a captive generating plant and maintains and operates such
plant, shall have the right to open access for the purposes of carrying electricity from his captive
generating plant to the destination of his use. Provided that such open access shall be subject to
availability of adequate transmission facility and such availability of transmission facility shall be
determined by the Central Transmission Utility or the State Transmission Utility, as the case may
be.

Section 38. (2)(d) (Central Transmission Utility and functions)

To provide non-discriminatory open access to its transmission system for use by-
(i) Any licensee or generating company on payment of the transmission charges; or
(ii) any consumer as and when such open access is provided by the State Commission under sub-
section (2) of section 42, on payment of the transmission charges and a surcharge thereon, as may
be specified by the Central Commission
Provided that such surcharge shall be utilized for the purpose of meeting the requirement of current
level cross-subsidy. Provided further that such surcharge and cross subsidies shall be
Progressively reduced in the manner as may be specified by the Central Commission:
Provided also that the manner of payment and utilization of the surcharge shall be specified by the
Central Commission:
Provided also that such surcharge shall not be leviable in case open access is provided to a person
who has established a captive generating plant for carrying the electricity to the destination of his
own use.

Section 39. (2)(d)(State Transmission Utility and functions)

To provide non-discriminatory open access to its transmission system for use by-
(i) any licensee or generating company on payment of the transmission charges ; or
(ii) any consumer as and when such open access is provided by the State Commission under sub-
section (2) of section 42, on payment of the transmission charges and a surcharge thereon, as may
be specified by the State Commission:
Provided that such surcharge shall be utilised for the purpose of meeting the requirement of current
level cross-subsidy: Provided further that such surcharge and cross subsidies shall be progressively
reduced in the manner as may be specified by the State Commission. Provided also that the manner
of payment and utilisation of the surcharge shall be specified by the State Commission: Provided
also that such surcharge shall not be leviable in case open access is provided to a person who has
established a captive generating plant for carrying the electricity to the destination of his own use.

Section 42. (Duties of distribution licensee and open access)

The State Commission shall introduce open access in such phases and subject to such conditions,
(including the cross subsidies, and other operational constraints) as may be specified within one
year of the appointed date by it and in specifying the extent of open access in successive phases
and in determining the charges for wheeling, it shall have due regard to all relevant factors
including such cross subsidies, and other operational constraints:
Provided that such open access shall be allowed on payment of a surcharge in addition to the
charges for wheeling as may be determined by the State Commission: Provided further that such
surcharge shall be utilised to meet the requirements of current level of cross subsidy within the
area of supply of the distribution licensee. Provided also that such surcharge and cross subsidies
shall be progressively reduced in the manner as may be specified by the State Commission:
Provided also that such surcharge shall not be leviable in case open access is provided to a person
who has established a captive generating plant for carrying the electricity to the destination of his
own use: Provided also that the State Commission shall, not later than five years from the date of
commencement of the Electricity (Amendment) Act, 2003, by regulations, provide such open
access to all consumers who require a supply of electricity where the maximum power to be made
available at any time exceeds one megawatt. Of a distribution licensee, (not being a local authority
engaged in the business of distribution of electricity before the appointed date) requires a supply
of electricity from a generating company or any licensee other than such distribution licensee, such
person may, by notice, require the distribution licensee for wheeling such electricity in accordance
with regulations made by the State Commission and the duties of the distribution licensee with
respect to such supply shall be of a common carrier providing non-discriminatory open access.

Where the State Commission permits a consumer or class of consumers to receive supply of
electricity from a person other than the distribution licensee of his area of supply, such consumer
shall be liable to pay an additional surcharge on the charges of wheeling, as may be specified by
the State Commission, to meet the fixed cost of such distribution licensee arising out of his
obligation to supply.
Every distribution licensee shall, within six months from the appointed date or date of grant of
license, whichever is earlier, establish a forum for redressal of grievances of the consumers in
accordance with the guidelines as may be specified by the State Commission.

Any consumer, who is aggrieved by non-redressal of his grievances under sub-section (5), may
make a representation for the redressal of his grievance to an authority to be known as Ombudsman
to be appointed or designated by the State Commission.

The Ombudsman shall settle the grievance of the consumer within such time and in such manner
as may be specified by the State Commission.

Section 61. (Tariff regulations)

The Appropriate Commission shall, subject to the provisions of this Act, specify the terms and
conditions for the determination of tariff, and in doing so, shall be guided by the following, namely
the promotion of co-generation and generation of electricity from renewable sources of energy and
the National Electricity Policy and tariff policy
Section 86. (1) (a)(c)(Functions of State Commission)
The State Commission shall discharge the following functions, namely: -the determination of the
tariff for generation, supply, transmission and wheeling of electricity, wholesale, bulk or retail, as
the case may be, within the State:
Provided that where open access has been permitted to a category of consumers under section 42,
the State Commission shall determine only the wheeling charges and surcharge thereon, if any, for
the said category of consumers and facilitate intra-State transmission and wheeling of electricity.

Provisions for Open Access & R.E in Tariff Policy 2016

The Ministry of Power has taken keen interest in promoting power procurement from Renewable
energy sources and also successfully operationalizing open access in the transmission and
distribution sector. The road to success is still far away with numerous challenges still remaining
to be overcome. The Tariff Policy 2016 highlights the wishes of the ministry in fulfilling its
promise and is mostly dedicated to proper harnessing of Renewable power and at the same time
determining new formula for surcharge calculation.

Tariff structuring and associated issues

Under this section a two-part tariff structure should be adopted for all long-term and medium-term
contracts to facilitate Merit Order dispatch. According to National Electricity Policy, the
Availability Based Tariff (ABT) is also to be introduced at State level. The tariff policy 2016 has
a separate section on Renewable Energy viz: Renewable sources of energy generation including
Co-generation from renewable energy sources.
Under provisions of section 86(1)(e) of the Act, the Appropriate Commission shall fix a minimum
percentage of the total consumption of electricity in the area of a distribution licensee for purchase
of energy from renewable energy sources, taking into account availability of such resources and
its impact on retail tariffs. Cost of purchase of renewable energy shall be taken into account while
determining tariff by SERCs. Long term growth trajectory of Renewable Purchase Obligations
(RPOs) will be prescribed by the Ministry of Power in consultation with MNRE.

The SERCs shall also reserve a minimum percentage for purchase of solar energy from the date of
notification of this policy which shall be such that it reaches 8% of total consumption of energy,
excluding Hydro Power, by March 2022 or as notified by the Central Government from time to
time
REC mechanism to be promoted. Through such a mechanism, the renewable energy based
generation companies can sell the electricity to local distribution licensee at the rates for
conventional power and can recover the balance cost by selling certificates to other distribution
companies and obligated entities enabling the latter to meet their renewable power purchase
obligations. The REC mechanism should also have a solar specific REC.

States shall endeavor to procure power from renewable energy sources through competitive
bidding to keep the tariff low, except from the waste to energy plants. Procurement of power by
Distribution Licensee from renewable energy sources from projects above the notified capacity,
shall be done through competitive bidding process, from the date to be notified by the Central
Government.

Cross-subsidy surcharge and additional surcharge for open access

National Electricity Policy lays down that the amount of cross-subsidy surcharge and the additional
surcharge to be levied from consumers who are permitted open access should not be so onerous
that it eliminates competition which is intended to be fostered in generation and supply of power
directly to the consumers through open access.
A consumer who is permitted open access will have to make payment to the generator, the
transmission licensee whose transmission systems are used, distribution utility for the wheeling
charges and, in addition, the cross subsidy surcharge. The computation of cross subsidy surcharge,
therefore, needs to be done in a manner that while it compensates the distribution licensee, it does
not constrain introduction of competition through open access.

A consumer would avail of open access only if the payment of all the charges leads to a benefit to
him. While the interest of distribution licensee needs to be protected it would be essential that this
provision of the Act, which requires the open access to be introduced in a time-bound manner, is
used to bring about competition in the larger interest of consumers.

SERCs may calculate the cost of supply of electricity by the distribution licensee to consumers of
the applicable class as aggregate of (a) per unit weighted average cost of power purchase including
meeting the Renewable Purchase Obligation; (b) transmission and distribution losses applicable to
the relevant voltage level and commercial losses allowed by the SERC; (c) transmission,
distribution and wheeling charges up to the relevant voltage level; and (d) per unit cost of carrying
regulatory assets, if applicable.

Surcharge formula:
S= T – [C/ (1-L/100) + D+ R]
Where
S is the surcharge
T is the tariff payable by the relevant category of consumers, including reflecting the Renewable
Purchase Obligation
C is the per unit weighted average cost of power purchase by the Licensee, including meeting the
Renewable Purchase Obligation
D is the aggregate of transmission, distribution and wheeling charge applicable to the relevant
voltage level
L is the aggregate of transmission, distribution and commercial losses, expressed as a percentage
applicable to the relevant voltage level
R is the p.u cost of carrying regulatory assets.
Above formula may not work for all distribution licensees, particularly for those having power
deficit, the State Regulatory Commissions, while keeping the overall objectives of the Electricity
Act in view, may review and vary the same taking into consideration the different circumstances
prevailing in the area of distribution licensee. Provided that the surcharge shall not exceed 20% of
the tariff applicable to the category of the consumers seeking open access. Provided further that
the Appropriate Commission, in consultation with the Appropriate Government, shall exempt levy
of cross subsidy charge on the Railways, as defined in Indian Railways Act, 1989 being a deemed
licensee, on electricity purchased for its own consumption.

The additional surcharge for obligation to supply as per section 42(4) of the Act should become
applicable only if it is conclusively demonstrated that the obligation of a licensee, in terms of
existing power purchase commitments, has been and continues to be stranded, or there is an
unavoidable obligation and incidence to bear fixed costs consequent to such a contract. The fixed
costs related to network assets would be recovered through wheeling charges.
The wheeling charges should be determined on the basis of same principles as laid down for intra-
state transmission charges and in addition would include average loss compensation of the relevant
voltage level. In case of outages of generator supplying to a consumer on open access, standby
arrangements should be provided by the licensee on the payment of tariff for temporary connection
to that consumer category as specified by the Appropriate Commission. Provided that such charges
shall not be more than 125 percent of the normal tariff of that category.

Research Methodology
The research for the project was based on Landed Cost Sheet calculation which helps in
determining the open access charges for the considered states. The assumptions are based on the
fact that the renewable energy generator has a capacity of minimum 1MW and annually generates
1.66MU. Also the operating charges has not been considered while determining the landed cost.
The flowchart below gives a detailed process of the research methodology.
 Study of CERC and SERC Open Access Regulations

Study of issues related to Open Access

Study of Open Access charges applicable

Collection of open access charges from different Tariff Orders

Preparation of the Landed Cost Sheet

Landed Cost Sheet analysis

Recommendation and conclusion

The sample states taken for the study are Maharashtra, Gujarat, Rajasthan, Tamil Nadu, Andhra
Pradesh, Madhya Pradesh and Karnataka. The data such as Transmission Charges, Transmission
Losses, Wheeling Charges. Wheeling Losses & Cross Subsidy surcharges have been collected
from various SERC websites from the sample states. The data related to open access provision in
solar generation have been collected from by visiting the renewable tariff orders of the sample
states taken for the study.

Assumptions:
The research methodology is based on certain assumptions. Some of them are summarized as
follows: The selection of sample states have been done on the following assumptions:
1. Solar Potential State i.e. the Solar Energy Generation or installed capacity is high.
2. Solar & OA regulations are in place
3. Data availability by SERC‟s orders and MNRE website.
The Landed Cost Sheet analysis is done on the following assumptions: Consumers are High
voltage and of Industrial & Commercial category.

Calculations have been done for the Long term & Medium term Open Access consumers
depending upon the availability of charges on the SERC website. Generally the voltage levels
taken from the respective SERC‟s website of the sample state: 11KV, 33KV, 66KV & 132KV.
The calculation of Landed Cost has been done for 1MW plant with CUF 19% & Cost of Generation
is assumed at Rs.3.00/KWhr.

Calculation of Landed cost has been done taking into account the Transmission charges, Wheeling
charges, Transmission losses, Wheeling losses, Cross subsidy surcharge and additional charges
wherever applicable.