Hiving Off

Powergrid to bifurcate its CTU operations

In a key recent development, the Ministry of Power (MoP) has advised public transmission major Power Grid Corporation of India (Powergrid) to hive off its operations as the central transmission utility (CTU) into a separate entity. In a letter dated June 17, 2020, the MoP has advised Powergrid to immediately set up a CTU as its 100 per cent subsidiary with a separate accounting and board structure, which would identify and plan the transmission network in the country.

The move to structurally separate the CTU operations has been in discussion for the past few years. In fact, in 2016, the MoP had approached the union cabinet with a proposal to separate the CTU status from Powergrid.

The Electricity (Amendment) Act, 1998, had defined transmission as a separate activity, which led to the creation of the CTU (currently Powergrid) and state transmission utilities. Powergrid was notified as the CTU by the government on December 31, 1998. Among other functions, the CTU’s role includes transmission of electricity through the interstate transmission system, and planning and coordination of the interstate power transmission infrastructure, including interstate and interregional lines. The CTU also has the responsibility of collecting wheeling charges from power generators and state electricity utilities for using its transmission infrastructure. The CTU retains its share and then distributes the remaining to private licensees. The CTU’s role is also to provide all licensees and generating companies non-discriminatory open access to its transmission system.

The CTU’s dual role of a planner and a transmission developer has been contested by the industry repeatedly in the past, especially since January 2011, when all transmission lines were mandated to be developed using the tariff-based competitive bidding (TBCB) mechanism. Powergrid participates in TBCB for transmission projects alongside private players in these tenders. Private players had alleged that there is no level playing field in bidding due to asymmetry of information between private developers and Powergrid (as CTU). “Powergrid currently plays a dual role and is thereby privy to commercially sensitive information. In the course  of discharging  its  duties as a CTU and as a member of the empowered committee, Powergrid is  privy to certain material non-public and cost-sensitive information – apart from having rights to influence decision-making  in  the empowered committee.  It is, therefore, recommended that the CTU be hived off from Powergrid,” stated a 2013 FICCI report.

In 2009, the government had carved out another embedded function – grid management – from Powergrid as it did not want a public sector company competing with private companies for setting up the transmission network and at the same time operating the grid. Hence, in March 2009, the grid management operations of Powergrid were incorporated into a new entity called Power System Operation Corporation Limited (POSOCO). The grid management operations include the National Load Despatch Centre (NLDC), five regional load despatch centres and 33 state load despatch centres. POSOCO was also incorporated as a wholly owned subsidiary of Powergrid. In January 2017, POSOCO was made an independent entity under the MoP. The entire equity capital of POSOCO, comprising 30.64 million equity shares of Rs 10 each, was transferred from Powergrid to the MoP, for a total consideration of Rs 810 million. The exercise of hiving off POSOCO was aimed at putting in place an independent, secure and reliable power system operation entity at the national level as mandated under the Electricity Act, 2003.

Next steps

The new entity will have separate accounting, and a separate board structure to independently carry out its statutory functions. The creation of a revenue stream of the new CTU will be formalised by the Central Electricity Regulatory Commission. Till then, Powergrid will manage the revenue of the CTU.  It is likely that in the course of time, the new CTU will also be made an independent entity under the power ministry.

Net, net, the decision to create a separate CTU subsidiary marks a key policy reform in the current power transmission sector’s industry structure and should help create a more competitive market structure going forward.

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