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.
