Central Electricity Regulatory Commission
Encyclopedia
Central Electricity Regulatory Commission (CERC), a key regulator of power sector in India, is a statutory body functioning with quasi-judicial status under sec - 76 of the Electricity Act 2003
Electricity Act (2003)
The Electricity Act, 2003 is a revolutionary piece of legislation enforced in India that aims to transform the power sector in India.The act covers major issues involving generation, distribution, transmission and trading in power...

. CERC was initially constituted on 24 July 1998 under the Ministry of Power’s
Ministry of Power (India)
The Ministry of Power is an Indian government ministry. The Minister of Power holds cabinet rank as a member of the Council of Ministers. The current minister is Sushilkumar Shinde....

 Electricity Regulatory Commissions Act, 1998 for rationalization of electricity tariff
Electricity tariff
Electricity pricing varies widely from country to country, and may vary signicantly from locality to locality within a particular country. There are many reasons that account for these differences in price...

s, transparent policies regarding subsidies, promotion of efficient and environmentally benign policies, and for matters connected Electricity Tariff regulation. CERC was instituted primarily to regulate the tariff of Power Generating companies owned or controlled by the government of India, and any other generating company which has a composite scheme for power generation and interstate transmission of energy
Power transmission
Power transmission is the movement of energy from its place of generation to a location where it is applied to performing useful work.Power is defined formally as units of energy per unit time...

, including tariffs of generating companies.

History

On 2 July 1998, recognizing the needs for reforms in the electricity sector nationwide, the Central Government of India moved forward to enact the Electricity Regulatory Commission Act of 1998, which mandated the creation of the Central Electricity Regulation Commission with the charge of setting the tariff of centrally owned or controlled generation companies. Ministry of Power, India, has published the Electricity Regulatory Commissions Act, 1998. Apart from CERC, the act also introduced a provision for the states to create the State Electricity Regulation Commission (SERC) along with the power to set the tariffs without having to enact separate state laws.

Mr.S.L.Rao was the first Chairman of CERC (1998–2001).

During March 2004, Indian Institute of Management - Ahmedabad (IIM-A)
Indian Institute of Management Ahmedabad
The Indian Institute of Management Ahmedabad , better known as IIM Ahmedabad or simply IIM-A, is a business school located in Ahmedabad, Gujarat, India. It is the second Indian Institute of Management to be established, in 1961.-History:...

 called for the merger of the Central Electricity Authority (CEA)
Central Electricity Authority of India
The Central Electricity Authority of India is a statutory organisation constituted under section 3 of Electricity Supply Act 1948, which has been superseded by section 70 of the Electricity Act 2003...

 and Central Electricity Regulatory Commission (CERC) on the grounds that technical and economic regulatory functions need to be carried out in close coordination. Even though the Electricity Act (EA) 2003
Electricity Act (2003)
The Electricity Act, 2003 is a revolutionary piece of legislation enforced in India that aims to transform the power sector in India.The act covers major issues involving generation, distribution, transmission and trading in power...

 envisages separate identify for CERC and CEA, and there is a necessity for separation in the short run, the two regulators should be merged eventually, as there are substantial synergies between them. But Ministry of Power rejected IIM-A’s recommendations in this regard and observed that the tariff fixation is in the exclusive domain of electricity regulatory commissions (ERCs), and no other entity or government has any role in this regard.

On 1 September 2009, CERC has entered into an Memorandum of Understanding (MoU) with world renowned USA’s Federal Energy Regulatory Commission
Federal Energy Regulatory Commission
The Federal Energy Regulatory Commission is the United States federal agency with jurisdiction over interstate electricity sales, wholesale electric rates, hydroelectric licensing, natural gas pricing, and oil pipeline rates...

 for Development and regulatory oversight of Power market, Grid Reliability, Energy Efficiency, Transmission and Distribution services in India.

Obligations of CERC

  • Formulate an efficient tariff setting mechanism, which ensures speedy and time bound disposal of tariff petitions, promotes competition, economy, and efficiency in the pricing of bulk power and transmission services, and ensures minimal cost investments.
  • The regulation of tariffs of central generating stations.
  • The regulation of tariffs of electric power generated and sold across states in a composite package.
  • The regulation of interstate transmission tariffs, and facilitation of open access in interstate transmission.
  • To issue licences to persons to function as transmission licensees and electricity traders with respect to their interstate operations.
  • To adjudicate disputes involving generating companies or transmission licensees.
  • To Improve the operations and management of the regional transmission systems through Indian Electricity Grid Code (IEGC), Availability Based Tariff (ABT
    Availability based tariff
    Availability Based Tariff is a frequency based pricing mechanism for electric power. The ABT falls under electricity market mechanisms to charge and regulate power to achieve short term and long term network stability as well as incentives and dis-incentives to market participants against...

    ), etc.
  • To specify and enforce the standards with respect to quality, continuity, and reliability of service by licensees.
  • To promote the development of the power market & fix the trading margin in the interstate trading of electricity, if considered necessary.
  • To discharge such other functions as may be assigned under the Act.

Advisory Functions

  • Formulation of National Electricity Policy and Tariff Policy.
  • Promotion of competition, efficiency, and economy in the activities of the electricity industry.
  • Promotion of investment in electricity industry.
  • Any other matter referred to the Central Commission by the Central Government.

Chairman and Members

  • Effective from 9 June 2008, Dr. Pramod Deo, Chairperson and Chief Executive, longest serving electricity regulator in India.
  • Effective from 11 September 2008, Mr. S. Jayaraman, Member.
  • Effective 23 February 2009, Mr. V. S. Verma, Member.
  • Effective 4 March 2004, Mr. M Deena Dayalan, Member.

Important Advice to Government

  1. Regarding time frame for tariff based competitive bidding (01-06-2010)
  2. Regarding the Open Access (18-05-2010)
  3. Regarding the installation of dedicated transmission lines (14-05-2010)
  4. Regarding the issues related to regulation of electricity forward contracts and electricity derivatives markets (19-02-2010).
  5. Regarding the matter of proposed amendment to Tariff Policy (14-1-2010)
  6. Regarding the modification in Standard Bidding Document for development of transmission lines through competitive bidding (13-1-2010)
  7. Regarding the issues relating to regulation of electricity forward contracts and electricity derivatives markets (18-11-2009)
  8. Regarding the guidelines and Standard Bidding Documents for tariff based competitive bidding for procuring transmission services (12-11-2009)
  9. Regarding ring-fencing of State Load Despatch Centers (11-08-2009).
  10. Regarding the competitive procurement of transmission Services (06-05-2009)
  11. Regarding order of the various State Governments (27-04-2009)
  12. Regarding the rates of depreciation to be notified under the Companies Act. (20-04-2009)
  13. Regarding designating electricity trader by Central Government for import of electricity from other countries (13-04-2009)
  14. Regarding the order of the Karnataka under Section 11 of the electricity act, 2003(5-02-2009)
  15. Regarding the measures for restricting the pricing of electricity in short-term market (22-12-2008)

Regulatory Independence

Regulatory Independence
Selection Process Selection of Chairman/members by Government on advice of selection committee
Qualifying Criteria Prescribed
Disqualifying Criteria Prescribed
Removal Criteria
& Procedure
Criteria Laid down. Removal with advice from Supreme Court of India
Tenure 5 Years. Not eligible for re-appointment
Staff Appointment Can appoint secretary and determine the number, nature and Categories of other staff but with government approval.
Staff Salary Staff Salary can be determined with the approval of government by regulations
Finance Expenses to be charged on Consolidated Fund of India
Relationship
with government
Quasi-Judicial body, but subject to policy direction by government of India.

Single part tariff

A system of single-part tariffs was in vogue in India for pricing of thermal power prior to 1992. The single-part tariff for a station was calculated to cover both the fixed cost as well as the variable (energy) cost at a certain (normative) generation level.

Demerit:
  1. Energy production above the normative generation level yielded additional revenue. i.e., a surplus over the fixed and variable cost of the station.
  2. The incentive and disincentive for power generation got linearly linked to the annual Plant Load Factor (PLF) of the generating station.

Two part tariff for Generation as per K.P. Rao Committee (1992)

Finding that the single-part tariff, particularly for Central generating stations, was conducive neither to economic generation of power as per merit-order, nor to satisfactory operation of the regional grids, the government of India adopted in 1992 a two-part tariff formula for NTPC
National Thermal Power Corporation
NTPC Limited is the largest Indian state-owned energy service provider based in New Delhi, India. It is listed in Forbes Global 2000 for 2010 ranked it 341st in the world...

 stations based on the recommendations of the KP Rao Committee.

Recognizing that there would be no motivation on the part of NTPC (Central generating stations) to maintain a high level of efficiency and availability if it was paid the full fixed cost irrespective of level of generation and variable cost for the quantum of energy actually generated, the K.P. Rao Committee had recommended a scheme of incentive/disincentive, as a variant of a simple two-part tariff. The scheme provided for linking of incentive and disincentive with Plant Load Factor (PLF) plus deemed generation, which in effect is Plant availability
Availability factor
The availability factor of a power plant is the amount of time that it is able to produce electricity over a certain period, divided by the amount of the time in the period. Occasions where only partial capacity is available may or may not be deducted...

.

Evolution of Availability Based Tariff (ABT)

The serious problems of regional grid operation however continued even after 1992. This was because the K.P. Rao Committee had been able to tackle only one end; the Central generation side. Overdrawals by some State Electricity Board's during peak-load hours and under-drawals during off-peak hours continued unabated, causing serious frequency excursions and perpetual operational/commercial disputes.

In the year 1994, M/s ECC of USA were commissioned under a grant from Asian Development Bank
Asian Development Bank
The Asian Development Bank is a regional development bank established on 22 August 1966 to facilitate economic development of countries in Asia...

 to undertake a comprehensive study of the Indian power system and recommend a suitable tariff structure.ECC submitted their report in February, 1994, recommending Availability Tariff for generating stations, which was accepted in principle by GOI
Government of India
The Government of India, officially known as the Union Government, and also known as the Central Government, was established by the Constitution of India, and is the governing authority of the union of 28 states and seven union territories, collectively called the Republic of India...

  in November, 1994. A National Task Force (NTF) was constituted by the Ministry of Power in February, 1995 to oversee the implementation of ECC’s recommendations. Based on NTF deliberations between 1995 and 1998, Ministry of Power had crystallized the formulation for the so-called Availability Based Tariff (ABT).

With the spirit of the Electricity Regulatory Commissions Act 1998 and consequent upon transfer of relevant powers vested under section 43 A (2) of the Electricity (Supply) Act 1948 to the CERC with effect from 15 May 1999, GOI forwarded the above draft ABT notification to CERC vide OM dated 31.5.1999 for finalization after due deliberation. The draft notification was then issued through a public notice and comments/objections were invited. The Commission in July 1999 held detailed hearings on the above. The ABT order dated January 4, 2000 of the Commission departs significantly from the draft notification as also from the prevailing tariff design.

Standard Tariff Model of CERC

Tariff for supply of electricity shall comprise two parts:
  1. Fixed or Capacity Charges (For recovery of Annual Fixed Cost)
  2. Energy or Variable Charges (For recovery of Primary Fuel Cost wherever applicable)


The annual fixed cost (AFC) of a generating station or a transmission system shall consist of the following components
  1. Return on equity (RoE)
    Return on equity
    Return on equity measures the rate of return on the ownership interest of the common stock owners. It measures a firm's efficiency at generating profits from every unit of shareholders' equity . ROE shows how well a company uses investment funds to generate earnings growth...

    ;
  2. Interest on loan capital;
  3. Depreciation
    Depreciation
    Depreciation refers to two very different but related concepts:# the decrease in value of assets , and# the allocation of the cost of assets to periods in which the assets are used ....

    ;
  4. Interest on Working capital
    Working capital
    Working capital is a financial metric which represents operating liquidity available to a business, organization or other entity, including governmental entity. Along with fixed assets such as plant and equipment, working capital is considered a part of operating capital. Net working capital is...

    ;
  5. Operation and maintenance expenses;
  6. Cost of secondary fuel oil (for Coal-based & Lignite fired generating stations);
  7. Special allowance for Renovation
    Renovation
    Renovation is the process of improving a structure. Two prominent types of renovations are commercial and residential.-Process:The process of a renovation, however complex, can usually be broken down into several processes...

     and Modernization
    Modernization
    In the social sciences, modernization or modernisation refers to a model of an evolutionary transition from a 'pre-modern' or 'traditional' to a 'modern' society. The teleology of modernization is described in social evolutionism theories, existing as a template that has been generally followed by...

     or separate compensation allowance, wherever applicable.


The Energy charge shall cover the Primary fuel cost and limestone consumption cost
(where applicable), and shall be payable by every beneficiary for the total energy scheduled to
be supplied to such beneficiary with fuel and limestone price adjustment

Appellate Tribunal and CERC

Appellate Tribunal for Electricity has been established by Central Government for those who are not satisfied with the Central Electricity Regulatory Commission order or with a state. The Tribunal has the authority to overrule or amend that order, just like the Income-Tax tribunal or the Central Administrative Tribunal. The tribunal has to be approached within 45 days of the aggrieved person getting the order.

Central Electricity Authority (CEA) and CERC

Since 1 April 1999 CEA has entrusted CERC with the task of regulating power tariffs of central government power utilities, inter-state generating companies, inter-state transmission tariffs. Section -76 of Electricity Act, 2003
Electricity Act (2003)
The Electricity Act, 2003 is a revolutionary piece of legislation enforced in India that aims to transform the power sector in India.The act covers major issues involving generation, distribution, transmission and trading in power...

 stipulates that CERC shall consist of a Chairperson and three other Members. And one of the CERC members (Ex-Officio) has to be Chairman of CEA.
In Indian Power Sector, CEA takes care of:
  1. Planning Regulation where power demand and supply gap has to be regulated.
  2. Construction regulation where Construction of Thermal, Hydro, Gas Based Power Plants and Power systems are regulated in the right manner.

Whereas CERC take care of third aspect of power sector regulation -
3.Tariff regulation, a purely economic exercise.

National Electricity Policy is normally formulated in consultation with and taking into account the views of the Central Electricity Regulatory Commission (CERC), Central Electricity Authority (CEA), and State Governments.

SERC and CERC

CERC and State Electricity Regulatory Commission (SERC) are the two electricity regulators — one operating at the central level and the other at various state levels. CERC’s primary function was to regulate the tariffs of central generating stations as well as for all interstate generation, transmission and supply of power. Whereas SERC’s primary function was to determine bulk and retail tariffs to be charged to customers, regulate the operations of intrastate transmission , including those of the State Load Despatch Center (SLDC).
During Parliamentary Standing Committee on Energy in the year 2001, SERC being established in states, for formulating standards relating to quality, continuity and reliability of service for the electricity industry have failed in their efforts. There was a proposal of having benches of the Central Electricity Regulatory Commission (CERC) in five to six locations instead of having a SERC in each state, but the Committee that has rejected the proposal stating it was not possible unless states were willing to accept such a proposal.

Ministry of Power and CERC

MoP entrusts CERC for providing escalation rate for coal and gas, inflation rate
Inflation rate
In economics, the inflation rate is a measure of inflation, the rate of increase of a price index . It is the percentage rate of change in price level over time. The rate of decrease in the purchasing power of money is approximately equal.The inflation rate is used to calculate the real interest...

based on WPI
Wholesale price index
The Wholesale Price Index is the price of a representative basket of wholesale goods. Some countries use WPI changes as a central measure of inflation. However, United States now report a producer price index instead.The Wholesale Price Index or WPI is "the price of a representative basket of...

and CPI
Consumer price index
A consumer price index measures changes in the price level of consumer goods and services purchased by households. The CPI, in the United States is defined by the Bureau of Labor Statistics as "a measure of the average change over time in the prices paid by urban consumers for a market basket of...

, discount rate, and dollar-rupee exchange variation rate for the purpose tariff determination.

Power Exchange Companies and CERC

Central Electricity Regulatory Commission (CERC) has issued the Power Market Regulations, 2010 which will govern transactions related to ‘’Energy trading’’ by companies like Indian Energy Exchange (IEX), Power Exchange India (PXI), National Power Exchange (NPX) in various contracts related to electricity.
The regulations have been issued by the CERC in exercise of its powers under section 66 of the Electricity Act, 2003, which is aimed at taking measures conducive to development of the electricity industry, promoting competition therein, protecting interest of consumers and enhancing supply of electricity.

Important Regulations / Policy Framework by CERC

1999
  1. 26-04-99,Conduct of Business Regulation-1999 8/1/99-CERC dt.23-04-99 Notification
  2. 26-11-99,Conduct of Business Regulation-1999 8/1/99-CERC dt.24-11-99 Notification

2000
  1. 10-05-00,Conduct of Business Regulation (First Amendment) 8/1(1)/99-CERC dt 28-04-00 Notification
  2. 25-05-00,Filing of Annual Report by Thermal Generating Companies L-7/20(1)/99-CERC dt.28-04-00
  3. 15-07-00, Filing of Annual Report by Transmission Utility L-7/20(1)/99-CERC dt.10-07-00

2001
  1. 26-03-01,Terms and conditions of Tariff L-25(1)/2001-CERC dt.26-03-01
  2. 24-09-01,Terms and conditions of Tariff L-25(1)/2001-CERCdt.21-09-01

2002
  1. 11-07-02,Terms and Condition of tariff Regulation-First Amendment-2002

2003
  1. 02-06-03,Terms and Conditions of Tariff (Second Amendment)Regulation-2003

2004
  1. 29-03-04,CERC Notification re.CERC (Terms and Conditions of Tariff)Regulations, 2004
  2. 09-09-04,CERC Notification re.CERC (Terms and Conditions of Tariff)(First Amendment) Regulations, 2004
  3. 06-02-04,CERC Notification re.CERC (Open Access in Inter-State Transmission)Regulations, 2004

2005
  1. 11-08-05,CERC Notification re.CERC (Terms and Conditions of Tariff)(first Amendment) Regulations, 2005
  2. 17-11-05,ERC Medical Regulations - Nov 2005
  3. 23-02-05,CERC Notification re.CERC (Open Access in inter-state Transmission)(First Amendment) Regulations,2005

2006
  1. 01-06-06,CERC Notification re.CERC (Terms and Conditions of Tariff)(First Amendment) Regulations, 2006

2007
  1. 13-03-07,CERC Notification re.CERC (Terms & Conditions of Tariff)(Amendment) Regulations, 2007

2008
  1. 07-02-08,CERC Notification re.CERC (Open Access in inter-State Transmission) Regulations, 2008

2009
  1. 28-05-09,CERC(Conduct of Business) (Amendment) Regulations, 2009
  2. 02-06-09,ERC (Procedure, Terms & Conditions for grant of Transmission Licence & other related matters) Regulations,2009.
  3. 20-01-09,Terms and Conditions of Tariff, Regulations for 2009-14
  4. 10-08-09,CERC Grant of Connectivity,LTOA & MTOA in inter-State Transmission related matters,2009
  5. 24-02-09,Procedure, Terms and Conditions for grant of trading licence and other related matters Regulations, 2009
  6. 26-09-09,Fees and charges of Regional Load Despatch Centre and other related matters Regulations, 2009
  7. 17-09-09,ERC Tariff Regulations for Renewable Energy Sources Regulations, 2009
  8. 24-12-09,Measures to relieve congestion in real time operation Regulations, 2009

2010
  1. 26-05-10,Procedure, Terms & Conditions for grant of Transmission License & other related matters (Amendment)Regulations, 2010
  2. 07-06-10,Procedure, Terms & Conditions for grant of trading license and other related matters (First Amendment) Regulations, 2010.
  3. 28-04-10,Indian Electricity Grid Code Regulations, 2010
  4. 28-04-10,CERC Unscheduled Interchange charges and related matters(Amendment) Regulations, 2010
  5. 21-01-10,Fixation of Trading Margin Regulations, 2010
  6. 21-01-10,Power Market Regulations, 2010
  7. 16-04-10,Procedures for calculating the expected revenue from tariffs & charges Regulations,2010
  8. 31-06-10,Grant of Regulatory Approval for execution of Inter-State Transmission Scheme to CTU Regulations,2010
  9. 15-06-10,CERC (Sharing of Inter State Transmission Charges and Losses) Regulations,2010.

See also

  • Central Electricity Authority of India
    Central Electricity Authority of India
    The Central Electricity Authority of India is a statutory organisation constituted under section 3 of Electricity Supply Act 1948, which has been superseded by section 70 of the Electricity Act 2003...

  • Ministry of Power
    Ministry of Power (India)
    The Ministry of Power is an Indian government ministry. The Minister of Power holds cabinet rank as a member of the Council of Ministers. The current minister is Sushilkumar Shinde....

  • Electricity Act 2003
    Electricity Act (2003)
    The Electricity Act, 2003 is a revolutionary piece of legislation enforced in India that aims to transform the power sector in India.The act covers major issues involving generation, distribution, transmission and trading in power...

  • Energy policy of India
    Energy policy of India
    The energy policy of India is largely defined by the country's burgeoning energy deficit and increased focus on developing alternative sources of energy, particularly nuclear, solar and wind energy....

  • Electricity sector in India
  • Maharashtra Electricity Regulatory Commission‎‎

External links

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