Easing the Norms: MoP issues draft Electricity (Amendment) Rules, 2023

On June 28, 2023, the Ministry of Po­wer (MoP) issued the Draft Electri­city (Amendment) Rules, 2023, de­tailing several reforms aimed at facilitating power transmission and open access, and improving the financial viability of discoms. A key proposal is the elimination of the transmission licence requirement for dedicated transmission lines connecting large consumers and energy storage systems (ESS). This measure aims to streamline the establishment of transmission and evacuation infrastructure, considering the substantial growth anticipated in green energy capacity. The draft rules propose to rationalise the currently prohibitive op­en access charges in certain states by introducing a different me­thodology for computing these charges, thereby making them more reasonable. Further, the draft proposal aims to prevent the creation of revenue gaps/re­gu­latory assets, except in extraordinary circumstances, and provide time-bound liquidation of su­ch assets. Additionally, the proposed rules mandate the upfront part payment of dues prior to filing an appeal before the Appellate Tribunal for Electricity or a higher court to discourage frivolous litigations. The MoP has invited comments on the draft until July 28, 2023.

A look at these proposals ans their expected impact…

Key proposals

Establishment, operation and maintenance of dedicated transmission lines: In the draft, the MoP pointed out that certain sta­keholders have raised concerns regar­ding the requirement of a transmission licence for bulk consumers to connect to the interstate transmission system, as per provisions outlined in the Electricity Act, 2003. Further, it has re­cei­ved re­quests to permit these large con­sumers, such as green hydrogen ma­nufacturers, to establish, operate or ma­in­tain dedicated trans­mi­ssion lines without the need for a lice­n­ce. Notably, in an order dated June 8, 2005, generation companies and captive generators were allowed to establish, operate or ma­­intain dedicated transmission lines without a licence. Similarly, a requ­est has been made to extend the same facility to bulk consumers who have a specified quantum of load and an ESS.

In this regard, the MoP has proposed to insert Rule 22, which stipulates that any generation company setting up a captive generation plant or an ESS will no longer require a transmission licence to establish, operate or maintain a dedicated tra­ns­mission line to connect to the grid. This exemption covers consumers with a minimum load capacity of 25 MW for interstate transmission systems or 10 MW for state transmission systems.

Open access charges: Open access is a fundamental aspect of the Electricity Act, 2003. However, the MoP has highli­ghted that the concept of open access has not been implemented to its intended extent due to the significant charges associated with it. It stated that several stakeholders have raised issues regarding the prohibitive rate of open access charges levied by different states.

To rationalise the open access charges, new rules have been proposed under Rule 23 by the MoP. These rules pres­cribed changes to the calculation of open access and wheeling charges, aiming to make them more reasonable. The charges for using the state transmission utility (STU) network by short-term open access consumers are proposed to be limited to a maximum of 110 per cent of the charges levied on consumers us­ing the STU network on a long-term ba­sis. Any additional surcharges to an open access consumer shall not exceed 50 per cent of the wheeling charges for that specific category. Under this rule, “long-term” signifies a period of not less than seven years. For long-term open access consumers, any additional surcharge imposed on them should be eli­minated within five years from the date of granting open access.

Gap between approved ARR and estimated annual revenue from approved tariffs: The MoP has noted that in several states, there is a large gap between the approv­ed annual revenue requirement (ARR) and estimated revenue from ap­proved tariffs. Hence, there is a need to enact statutory provisions to avoid such gaps and discourage such practices. To ensure the financial sustainability of the power sector, it is ess­ential that the tariff is cost reflective, and all the pru­dent co­sts are passed through. Fur­ther, it is crucial to expedite the liquidation of any revenue gaps between the re­quired and estimated approved tariffs.

As per the proposed Rule 24, the MoP has stated that the approved tariff must be cost-reflective and ensure no gap ex­ists between the approved ARR and the estimated annual revenue from the approv­ed tariff, except in the case of natural calamities. The gap, if any, should not exceed 3 per cent of the approved ARR. This gap, along with the carrying costs at the base rate of late payment surcharge (LPS), should be liquidated in a maxim­um of three equal yearly instalments star­ting from the next financial year. Mean­while, any gap as of the date of notification of these rules, along with the carrying costs, should be liquidated in a maximum of seven equal yearly instalments starting from the next financial year.

Appeal before APTEL: The Supreme Co­u­rt, vide judgment dated April 20, 2023, has made observations regarding non-essential litigations and their cost implications for consumers, along with the requirement for timely payment of dues. Further, the Su­pre­me Court has advised the MoP to develop a mechanism for ti­mely payment and to discourage unnecessary litigations. In co­m­pliance with the aforesaid judgment, the MoP has proposed to frame a rule to discourage frivolous litigations before the APTEL and higher courts.

As a result, the proposed amendment ma­n­dates the upfront part payment of dues prior to filing an appeal before APTEL or a higher court. As per Rule 25, any person appealing against an order must pay at least 50 per cent of the payable amount as per the commission’s order while filing an appeal before APTEL. In matters related to a change in law, the required payment will be 75 per cent of the total amount payable. After the final order of the tribunal on the ap­peal, any excess amount paid by the appellant to the other parties at the time of filing the appeal will be refunded along with the interest at the base rate of the LPS, within 90 days from the date of the order passed by APTEL. How­ever, in cases where APTEL or the Supreme Court deems the appeal to ha­ve been frivolous and without any co­gent ground whatsoever, the rate of the LPS shall be 18 per cent.

Likely impact

Overall, the proposals are timely and important. Eliminating the requirement of transmission licences for dedicated transmission lines to connect large consumers would create a new category of bulk consumers in the country. This wou­ld result in customers obtaining affordable electricity and enhanced grid reliability. The rationalisation of open access ch­ar­ges will be advantageous for industries and other bulk consumers as it allows them to procure electricity at reasonable rates through open access. Going forward, the MoP’s proposal to ensure that revenue gaps/regulatory assets are not created except in extraordinary circumstances and establishing a time-bound liquidation process for such instances will make the sector significantly more financially sustainable.