CII PTC Conference on

The Power Market Post Electricity Act 2003:

Entities, Business Models and Implications

by
Karthikeya Pisupati
Deloitte Touche Tohmatsu India Pvt Limited

October 15, 2003
SESSION II : EMERGING SHAPE OF DOWNSTREAM LINK
- TRANSMISSION & DISTRIBUTION
Context
More than 10 years of Reforms in the power sector
Some states have developed their own reform Acts
Unbundled their SEBs into G, T & Ds
Setting up of Electricity Regulatory Commissions
Privatisation of distribution (Orissa, Delhi)
Others yet to unbundle their integrated utility
Need to give thrust to reforms (in order to realise
efficiencies)
Introducing markets, open access, contestability of customers etc
This presentation looks at the business models of T & D in
the light of new Electricity Act, 2003
India Is Following Established Path Of Industry Evolution
Monopoly Transitional Competitive
Italy
Canada
New
Zealand
Australia
Mexico
South Africa
India (2003)
Russia/CIS
Asset Management Customer Management
C
u
s
t
o
m
e
r

C
o
n
t
e
s
t
a
b
i
l
i
t
y

Brazil
Pakistan
U.K.
Scandinavia
Argentina, Chile
United States
Germany
France
States position Circa 2003 Still Monopolies
Low
High
Integrated Unbundled D Privatised
Orissa
Delhi
Karnataka Haryana
Rajasthan
UP
AP
Uttaranchal
MP
Gujarat
TN
HP
Maharastra
Punjab
Assam
Nagaland
Bihar
Tripura
Sikkim
Ar.Pradesh
Mapping based on the Report on Rating of SEBs, ICRA & CRISIL
Engineering
Finance/
Marketing
Assets Customers
Monopoly Model Competitive Model
Key
Competencies
Management
Focus
Transmission/
Distribution
Generation/
Retail
Applicable
Segments
Physical
Portfolio
Customer
Portfolio
Value Lever
Value Drivers - By Segment
Whats the new Business Model for T & D?
Txn
Wires
SO
Bulk
Supply
TRANSCO
Retail
Supply
Dist
Wires
Large
Consumers
Other
Consumers
Franchise
Consumers
DISCOM
Open Access Unbundling Functions Trading Non-exclusivity
Txn
Wires
SO
Wholesale
Supply
Retail
Supply
Dist
Wires
Large
Consumers
Other
Consumers
Franchise
Consumers
TRANSCO DISCOM(S)
TRADECO (S)
Contestable
Consumers
GRID
CO (S)
Implication of new business model
Functionally, under T & D segment of the business,
Trading
System Operation
Transmission wires
Distribution wires
Retailing Non contestable consumers, Tariffs

Covered in the subsequent slides
Trading
Creation of Multi-
buyers & Multi
sellers
Define Trading
models
Scheduling &
Dispatch
Imbalances
Pricing of energy
Bilateral
Spot
Treatment of
subsidies/ cross-
subsidies in a
transparent way
Move to pricing
signals SRMC/
LRMC
Balancing &
Settlement modalities
Shortage of capacity
Pricing of ancillary
services
Non-exclusivity of
area of supply
Grid available to
move power over
different regions
Pricing for HT/ LT

Physical Pricing Issues/ Concerns
Act specifies Non-Discriminatory access to users
Multiple Licenses
CERC/ SERC to fix surcharge for open access with Special treatment
for captive

System Operation
Scheduling &
Dispatch Merit
Order
Treatment of
Imbalances
Spot
Ancillary services
Balancing &
Settlement need to
know the physical
contracts for
settlement
Pricing of
Imbalances
Pricing of
Ancillary services
Settlement
Contract
Balance
Sophisticated system
(within state)
Demand
management
Treatment of
shortages
minimum hrs of
supply for
Agriculture/ rural
Dispatch of Non-
conventional

Physical Pricing Issues/ Concerns
Act specifies Balancing & Settlement functions with LDCs

Transmission wires Inter & Intra state
Accurate
Measurement of
energy & capacity
handled
Congestion
Management
Availability of
system

Unbundling the
Average charges
Contract Path
MW mile
Postage stamp/
Incremental
Postage Stamp
Congestion pricing



Adequate pricing
signal for
maintenance of
system
Determination of
contract path pricing
within the state
New capital
expenditure
Incentive to
build?

Physical Pricing Issues/ Concerns
Act specifies only transmission wires for CTU/ STU along with system
operator function

Distribution Wires
Accurate
Measurement of
energy & capacity
handled
Loss reduction
investments
HT/LT ratio
Transformer
loading
Availability of
system


Unbundling the
Average charges
cost to serve
various loads
Defining wires
cost for multiple
licensees




Pricing signal for
new investment
(adequate for good
load development)
Right to connect (for
all categories
immediately?)
Duplication of
wires?

Physical Pricing Issues/ Concerns
Act specifies only metered supply after two years
Allows inset franchising
Special Policy for Rural distribution
Retailing Franchise consumers
Accurate
measurement of LT
system
Metering
Billing efficiency
Reduction of
theft & other
commercial losses

Pricing to
consumers
Cost to serve
Retain
customers
Customer
service
Managing demand
of Agriculture
Allocation rules
position in case of
multi buyers system
Need to retain the
creamy layer from
competition
Tariff rebalancing
Physical Pricing Issues/ Concerns
Act allows for special Policy for treatment of rural electrification
National tariff Policy?

General System Issues
Long term PPA signed with IPPs & other generators
Pricing pressure on adverse hydro/ thermal mix of generation
Limited number of trading players initially?
(from capital adequacy, capacity to bear loss positions)
Major cash flow problems need to still depend on large subsidy from
state government
Affect private participation in the existing distribution businesses of
state
Tariff principles (cross-sub elimination, agriculture tariffs, multi-year
tariffs)
Competitive bid tariff route (binding) How to define it for Trading,
Wires?
What are the pre-requisites for Competitive
Market?
Tariff reforms
Transparent/ clear understanding of Value chain and associated costs
Elimination of supply shortage
Multi-buyer and Multi seller
Price responsive Demand and Supply
Position for generators to participate in spot market
Access to Transmission and Distribution wires
Interconnectivity to trade power across states/ regions


Enablers in Electricity Act 03
Allows Electricity Boards to unbundle/ transfer to new
corporate entities
Unbundling of wires & Trading business
Fixed time frame for enunciating policy and action plan
Provision of open access
Tariff policy
Rural electrification
The Act is in the right direction
Modalities to be worked out - by States & Centre jointly..