In a key development, the Ministry of Power (MoP) has notified the Electricity (Amendment) Rules, 2022, bringing about several changes to the previous Electricity Rules, 2005. Significantly, the new rules permit distribution companies to automatically recover from consumers, on a monthly basis, the expenses arising out of variations in fuel price and power purchase costs. Also, under the new rules, the MoP has mandated the implementation of a uniform renewable energy tariff for a central pool from which an intermediary company will procure power to be supplied to an entity that will undertake distribution and retail supply to more than one state. The other changes proposed pertain to rules for surcharge payable by consumers seeking open access, subsidy accounting, resource adequacy, development of hydropower, delicensing of energy storage systems (ESSs), among other things.
A look at the key amendments outlined in the Electricity (Amendment) Rules, 2022 and their expected impact…
Cost recovery: As per the notified rules, within 90 days of publication of these rules, the appropriate commission will specify a price adjustment formula for the recovery of costs arising on account of the variation in the price of fuel, or power purchase costs. The impact in the cost due to such variation shall be automatically passed through to the consumer tariff, on a monthly basis, using this formula. Such monthly automatic adjustment will be trued up on an annual basis by the appropriate commission.
In case the distribution licensee fails to compute and charge the fuel and power purchase adjustment surcharge within the timeline specified by the appropriate commission, its right to recovery of costs will be forfeited. In such cases, the right to recovery of the fuel and power purchase adjustment surcharge determined during the true-up shall also be forfeited. The true-up of the fuel and power purchase adjustment surcharge by the appropriate commission, for any financial year, will be completed by June 30 of the next financial year.
Uniform renewable energy tariffs: As per the rules, uniform tariffs will be computed on a monthly basis by an implementing agency for each category in the central pool (solar power central pool, wind power central pool, etc). The intermediary procurer will sell the power from renewable energy sources to all end procurers at pre-decided tariffs. The implementing agency will be a central agency, notified by the centre, from time to time for the implementation of a “uniform renewable energy tariff for the central pool” under the said rules. The uniform renewable energy tariff under these rules will be applicable only to the renewable energy generators for their contracted capacity, which forms a part of the central pool under these rules.
ESS: Another key proposal under the draft rules is the delicensing of standalone ESSs, which will be considered a part of the power system. An ESS will be accorded status based on its application area – generation, transmission and distribution. The ESS can be developed, owned, leased and/or operated by a genco, a transmission licensee, a discom, a system operator, or a stand-alone ESS provider. When an ESS is owned and operated by and co-located with a generating station or a transmission or distribution licensee, it will have the same legal status as that of the owner. The ESS developer will have an option to sell, lease or rent out the storage space in whole or in part to any utility engaged in generation, transmission or distribution, or to a load despatch centre.
Resource adequacy: The National Load Despatch Centre and regional load despatch centres will carry out resource adequacy assessment for operational planning at the national and regional levels, respectively, on an annual basis, in accordance with the guidelines issued by the central government. A guideline for the assessment of resource adequacy during the generation planning stage (one year or beyond) as well as during the operational planning stage (up to one year) will be issued by the central government in consultation with the authority, within six months from the date of commencement of these rules. The state commission will frame regulations on resource adequacy, in accordance with the guidelines issued by the central government and the model regulations framed by the Forum of Regulators (FoR), if any, the distribution licensees will formulate the resource adequacy plan in accordance with these regulations and seek approval of the commission. The state commission will review the resource adequacy, for each of the distribution licensees, as per the timeline given in resource adequacy guidelines issued by the central government. The state commission may determine the non-compliance charges for failure to comply with the resource adequacy target approved by the commission.
Development of hydropower: The authority will decide the cases for the grant of approval under the hydro generation scheme within 150 days from the date of submission of the scheme. Further, the authority will decide the cases for the grant of concurrence to an off-the-river pumped storage plant scheme within 90 days from the date of submission of the scheme.
Disputes: The MoP has also substituted rules for the resolution of disputes, wherein the appropriate commission will pass a final order within 120 days from the date of receipt of the petition in the commission, which may be extended by 30 days for reasons to be recorded in writing. If a final order cannot be issued, due to any reason, to be recorded in writing, then an interim order will be issued by the appropriate commission, within the timeline prescribed. In case the final order has not been passed by the appropriate commission within 120 days or 150 days, as the case may be, the aggrieved party may be allowed to make an application to the Appellate Tribunal for Electricity, for appropriate relief.
Surcharge payable by consumers seeking open access: According to the rules, the surcharge determined by the state commission will not exceed 20 per cent of the average cost of supply (ACoS).
Subsidy accounting: Accounting of the due subsidy will be done by the discom in accordance with the standard operating procedure (SOP) issued by the central government.
Impact and the way forward
As per industry experts, the new rules provide a standard framework and facilitate the country’s energy transition. The provision to introduce a uniform renewable energy price will encourage discoms to sign power purchase agreements (PPAs) and accelerate the growth of the renewable energy sector. Discoms tend to delay entering into PPAs or renegotiate tariff costs because they find the tariffs to be higher or lower than those in earlier PPAs.
Also, making stand-alone ESS a delicensed activity will benefit the development of the renewable energy sector given that the systems facilitate peak shifting, peak shaving, ramp up/ramp down, and frequency control, and enhance the utilisation of the transmission system.
Further, the adoption of automated monthly cost recovery is being seen as a commendable effort considering the unnecessary delays in recovering charges. The provision of timely cost recovery will also be advantageous to the states that do not levy a fuel surcharge, as noted by the Prayas Energy Group in its comments on the draft notification issued previously. However, the states have expressed their apprehensions towards this provision and stated that the rules give discoms the freedom to automatically pass on the aforementioned costs through the electricity bill, which endangers consumer interests.
Apart from this, there are certain areas under the new bill that will require further clarification. For instance, with respect to the surcharge payable, experts note that it is unclear whether the surcharge refers to only cross-subsidy surcharge or additional surcharge as well. Also, the recently notified Green Open Access Rules exempt certain consumers from this surcharge (such as producers of green hydrogen or ammonia) and mandate the FoR to come up with a methodology and principles for determining the open access charges (including the surcharge). Therefore, it is not clear whether this 20 per cent cap proposed in the rules will override the methodology to be proposed by the FoR. Further, it is unclear which of the provisions related to open access surcharge (in these rules or in the Green Open Access Rules) will prevail in case of any dispute. Also, given their cost structures and sales mix, different discoms will need varying levels of open access surcharge support and a uniform 20 per cent of ACoS ceiling may not be enough to compensate discoms for their loss of revenue. Instead, a Rs 2.50-3 per kWh surcharge fixed for five years could be considered. For resource adequacy, it is unclear whether consumers (captive or rooftop solar with net metering, etc.) can also develop, own, lease and/or operate ESSs.
With respect to subsidy accounting, it recommended that rather than linking accounting to be done as per an SOP published under the revamped distribution sector scheme, it would be better if the SOP is actually codified as part of these rules. Further, the reporting should be done on a quarterly basis and uploaded on the website of the discoms, in addition to the periodic reporting to the Bureau of Energy Efficiency specified in the SOP document.
These concerns notwithstanding, the new rules have been welcomed by the industry as India prepares its roadmap for achieving 500 GW of non-fossil fuel capacity by 2030.