In this blog article, the authors have analysed the first and the second amendment to the CERC (Sharing of Inter-State Transmission Charges and Losses) Regulations, 2020. The analysis covers key changes introduced by the first amendment, including the revision of transmission charges and new guidelines for sharing losses. The authors also explore the potential implications of these changes, including their impact on various entities such as Designated ISTS Customers transmission licensees, Inter-State Transmission Licensees, National Load Despatch Centre, Regional Load Despatch Centres, State Load Despatch Centres, and Regional Power Committees.
The primary objective of the CERC (Sharing of Interstate Transmission Charges and Losses) (First Amendment) Regulations, 2023 is to promote the development of a robust and efficient interstate transmission network while ensuring that the costs associated with it, is borne by all the stakeholders in equal proportion. By doing so, these regulations aim to foster a more competitive and dynamic power market in the country while also encouraging the adoption of new technologies and renewable energy sources.
Lastly, the authors delve into the recent notification of the second amendment to the CERC (Sharing of Inter-State Transmission Charges and Losses) Regulations, 2020. They provide a detailed analysis of the new changes introduced by the Second Amendment and discuss their potential implications for the power sector in India.
Keywords: CERC (Sharing of Inter-State Transmission Charges and Losses) Regulations, 2020; CERC (Sharing of Interstate Transmission Charges and Losses) (First Amendment) Regulations, 2023; CERC (Sharing of Inter-State Transmission Charges and Losses) (Second Amendment) Regulations, 2023; Power Market.
TheCERC (Sharing of Interstate Transmission Charges and Losses) (First Amendment) Regulations, 2023 (“First Amendment Regulations/First Amendment”) represent an important step towards ensuring a fair and transparent allocation of costs associated with interstate transmission of electricity in India. These regulations establish a clear framework for determining charges and losses and provide a mechanism for their allocation among various entities involved in the power sector.
The Central Electricity Regulatory Commission (“CERC”) of India released the First Amendment Regulations to update theCERC (Sharing of Inter-State Transmission Charges and Losses) Regulations, 2020 (“Principal Regulations”). The First Amendment introduces a Late Payment Fee (“LPS”) on Designated Interstate Transmission System Customers (“DICs”) who fail to pay their bills on time for costs due under the Principal Regulations. It also mandates for sharing of transmission charges by the drawee DICs. The DICs shall be billed in accordance with the Principal Regulations, regardless of anything contrary contained in the Power Purchase Agreement (“PPA”) with the generating station or seller.
These regulations shall apply to all DICs, Inter-State Transmission Licensees, National Load Despatch Centre (“NLDC”), Regional Load Despatch Centres (“RLDCs”), State Load Despatch Centres (“SLDCs”), and Regional Power Committees (“RPCs”).
B. Need for Central Electricity Regulatory Commission (Sharing of Inter-State Transmission Charges and Losses) (First Amendment) Regulations, 2023
The First Amendment Regulations have beenintroduced to address certain key issues that have been identified in the implementation of the Principal Regulations, namely:
- Promoting the development of a robust and reliable inter-state transmission network: The First Amendment Regulations aim to promote the development of a robust and reliable inter-state transmission network by providing a mechanism for the identification and development of transmission projects based on system requirements.
- Facilitating the integration of renewable energy sources: The new amendment seeks to facilitate the integration of renewable energy sources into the inter-state transmission network by providing incentives for the transmission of renewable energy and promoting the development of transmission infrastructure to support the integration of renewable energy.
- Ensuring transparency and fairness in sharing transmission charges and losses: The First Amendment Regulations aim to ensure a transparent and fair mechanism in sharing the transmission charges and losses. With this objective, the First Amendment Regulations set out guidelines for the determination of transmission charges and losses and ensure that the costs are shared equitably among the various stakeholders involved in the transmission of electricity.
In this context, the authors have conducted a tabular analysis as an effort to bifurcate the pertinent First Amendment Regulations by discussing the important Regulations, their key takeaways, and implications. By doing so, they aim to provide a comprehensive and detailed understanding of the changes introduced by the First Amendment Regulations and their impact on the power sector in India.
In order to facilitate comprehension, the term “Regulations” is used to refer to the First Amendment Regulations as discussed in the following table:
C. The potential for reducing the cost of renewable energy projects through the waiver of ISTS charges and losses
Cost-effective energy solutions through Government waivers:
(1) By signing up for ISTS, companies can reduce energy costs by 20%-50% annually and improve competitiveness by declaring access to sustainable energy solutions.
(2) The ISTSwaiver would help reduce net landed cost for consumers by ₹0.70 (~$0.0094) – ₹0.80 (~$0.011)/kWh.
Thiswaiver will provide significant cost savings to open-access consumers, particularly commercial and industrial units, who could save around ₹0.50(~$0.006)/kWh in ISTS charges when procuring renewable power.
- Improved Energy Security: The ISTS network has a capacity of over 60,000 MW, which ensures a consistent supply of energy to meet the growing demand, thus reducing the risk of energy shortages and power disruptions.
- Enhanced Corporate Reputation: Companies that adopt sustainable energy solutions, such as those provided by ISTS, can enhance their corporate reputation and attract customers who prioritize environmentally friendly practices. (According to a survey by Nielsen, 66% of consumers are willing to pay more for products from companies committed to sustainability).
- Access to Renewable Energy Certificates (“RECs”): Companies can access RECs provided by CERC by signing up for ISTS, which helps declare their offset of carbon footprint and improve their sustainability credentials.
The First Amendment Regulations,waives ISTS charges for renewable energy generating stations (“REGS”), renewable hybrid generating stations (“RHGS”), and pumped hydroelectric stations that willcommence commercial operation by June 30, 2025. This waiver will remain in effect for 25 years. The ISTS waiver would increase the geographical reach of open-access solar developers as they could supply power to consumers in more states, which could catalyse growth in the renewable energy sector.
Moreover, the First Amendment Regulationsprovide a comprehensive explanation of the methodology for calculating transmission deviation charges for various entities, including generating stations, battery storage systems, and captive projects. These rules also outline the calculation process for states and other designated ISTS customers. According to the updated Principal Regulations, the Transmission Deviation Rate for a state or designated ISTS customer in a billing month will be determined by dividing 1.25 times the total transmission charges of all drawee ISTS customers in the state by the general and designated network access quantum of such entities located in the state.
C. Designated Inter-State Transmission System Customers
Drawee DICs refer to Designated Inter-State Transmission System Customers. The term “drawee DIC” is used in the Principal Regulations and the First Amendment Regulations. The sharing of transmission charges among drawee DICs is an important aspect of the First Amendment Regulations, as it ensures that the charges are distributed fairly among the stakeholders involved.
The drawee DICs play an important role in the Principal Regulations as they are the designated inter-state transmission system customers that draw power through ISTS but do not include Energy Storage Systems (“ESS”) for sharing transmission charges. The transmission charges and losses for use of the ISTS shall be shared among drawee DICs of ISTS, including entities that draw power through the ISTS.
The bills for sharing of transmission charges shall be raised on the drawee DICs in terms of these regulations, and the settlement of the transmission charges inter se between the drawee DICs and the generating station or the seller, wherever necessary, will be made in terms of the PPA or as per the mutual agreement between the concerned parties. The sharing of yearly transmission charges among drawee DICs ensures that the charges are distributed fairly among the stakeholders involved and that the electricity sector operates smoothly.
The First Amendment Regulations also make it mandatory for the drawee DICs to pay for the sharing of transmission charges in accordance with these regulations, irrespective of any contrary provisions in the PPA with the generating station or seller. Furthermore, the Principal Regulations require the DIC to maintain/replenish the Letter of Credit (“LoC”) or other payment security mechanism for the amount as determined under the bills raised against such drawee. As perElectricity (Late Payment Surcharge and Related Matters) Rules, 2022 (“LPS Rules”), Rule 6, any failure/non-compliance in this regard, will make the defaulting DIC liable for action under the LPS Rules:
- A distribution licensee or any other user of the transmission system must maintain an unconditional, irrevocable, and adequate payment security mechanism. This mechanism is necessary to ensure that the payment for the power consumed is made on time and in full. The payment security mechanism can be in the form of a LoC or a bank guarantee. It is the responsibility of the distribution licensee to ensure that the payment security mechanism is in place at all times.
- If a payment security mechanism is not maintained by a distribution licensee, generating companies, electricity trading licensees, and transmission licensees may regulate power supply to the distribution licensee in accordance with the rules and regulations.
- The generating companies, electricity trading licensees, and transmission licensees shall provide power supply only if the payment security mechanism is maintained or if advance payment is made.
- If the distribution licensee defaults on payment, they will still be liable for the payment of fixed charges or capacity charges as agreed upon in the contract.
- The gains from the sale of such power, which shall be the difference between the selling price of such power in the power exchange and the expense borne by the generating company including energy charges, transmission charges; other incidental charges, shall be adjusted in the following order. Firstly, the fixed charges shall be recovered, followed by the liquidation of overdue amount. The balance shall be shared in the ratio of 75:25 between the distribution licensee and the generating company.
- The regulatory entity shall provide a detailed calculation of the gains from the sale of power, and the distribution licensee shall be informed about the same on a monthly basis.
Moreover, If found to be in contravention with the Principal Regulations, the defaulting DIC shall be liable in accordance with Regulation 19 (4) of the Principal Regulations stating if a DIC fails to make payment for any bill or part thereof by the Due Date, they shall be liable for default. In such a case, the Central Transmission Utility (“CTU”) may take action and encash the LoC or recover the overdue amount through any other instrument of payment security mechanism provided by the distribution licensee. Additionally, Late Payment Surcharge may also be applicable.
Additionally, any failure in payment of transmission charges within the due date shall also result in action being taken against such defaulting DIC by the CTU on behalf of the Inter-State Transmission Licensee(s), as per the provisions of the LPS Rules.
D. Proposal For A Second Amendment
The CERC released thedraft Central Electricity Regulatory Commission (Sharing of Inter-State Transmission Charges and Losses) (Second Amendment) Regulations, 2023 (“Draft Second Amendment Regulations/Second Amendment”) on March 17, 2023. This continues with CERC’s efforts to ensure a fair and transparent allocation of costs associated with inter-state electricity transmission in India. The public notification had invited comments, suggestions, and objections from stakeholders and interested parties, within April 17, 2023. The proposed Second Amendmentsuggests that an Inter-State Transmission Licensee should receive 20% of the Yearly Transmission Charges (“YTC”) of its ISTS for the first 6 months from the deemed Date Of Commercial Operation (“COD”) or until the actual power flow commences, whichever is earlier. After this period, the Inter-State Transmission Licensee should receive 100% of the YTC of its ISTS until the actual power flow commences, in case the flow is not achieved within 6 months from the deemed COD. These charges shall be disbursed from charges collected under the third bill. These amendments are expected to further streamline the allocation of transmission costs further and promote the development of a robust and efficient interstate transmission network in the country.
A COD is the date on which a power plant or a transmission system is deemed to have achieved commercial operation and is ready to supply electricity to the grid. However, if there are delays in the power flow due to issues with another transmission licensee, it may cause delays in achieving the COD for the affected transmission system.
It is observed that inter-connecting transmission systems should be planned with matching dates to avoid mismatches at the planning stage. However, during execution, transmission systems may face delays due to various reasons, including but not limited to a force majeure event or an event of material adverse effect under the respective PPA. In such cases, a transmission system may need to declare deemed COD due to delays in the commencement of power flow due to postponements of another transmission licensee.
A “deemed COD”, means that the system will be considered to have achieved commercial operation even though it may not have been able to transmit power as per its original timeline. This is a way to account for the delays caused by external factors and ensure that the system is not penalized for factors beyond its control.
The Hon’ble Supreme Court, way back in 2016, while decidingPower Grid Corpn. of India Ltd. v. Punjab State Power Corpn. Ltd., (2016) 4 SCC 797 had ruled that the beneficiaries cannot be held liable to pay transmission charges even before the transmission line becomes operational. This consideration seems to have been duly taken into account while framing the Draft Second Amendment Regulations.
The Second Amendment has been proposed to address certain key issues like mismatch between the commissioning of inter-state and intra-state transmission systems, which results in non-commencement of power flow in the inter-state transmission system. In the draft Second Amendment, the CERC has categorically identified threetypes of mismatch cases: Generation-Transmission, Transmission-Transmission, and Transmission-Upstream/Downstream connecting the Transmission System of the STU. Notably, Regulation 13(3), 13(6) and 13(9) of the Principal Regulations already addresses the mismatch cases between Generation and Transmission.
In proposing the Second Amendment, the Hon’ble Supreme Court’s directions and Ministry of Powersuggestions have been taken into account. The following aspects have been considered:
- The liabilities must be equitable.
- Distribution licensees who do not benefit from a system under deemed COD without any power flow should not be held liable for transmission charges.
- A transmission licensee whose system is delayed cannot be denied a tariff for a long time, leading to financial uncertainties.
- A transmission licensee who is delayed for any reason, including Force Majeure, must make all efforts to commission its system at the earliest to avoid national wastage.
The Second Amendment proposes certain liabilities for delayed transmission licensees to
“minimize delays in power flow”, and to hold accountable such delayed licensee. This ensures the fact that any natural wastage can be avoided and the transmission licensee tries to commission its system at the earliest in order to put the stranded assets at use.
Basing this the Second Amendment shall also guide on how to treat transmission charges for a transmission system declared or approved for deemed COD by providing a methodology for the same.
While the amendments may not be perceived with equal satisfaction from all the stakeholders, since it affects each of the stakeholders differently (especially the DICs), it surely ensures an equitable distribution that will benefit the power sector industry at large. We understand that the Principal Regulations are at a very nascent and budding stage. Amendments in this regard will be frequently brought about, depending on how the market grows.
At this point it might be uncertain to predict as to what other sectoral challenges may arise, especially in relation to the practical aspects and feasibility of billing and sharing of the transmission costs and losses that are required to be shared equitably between all the stakeholders in accordance with the Principal Regulations read with the amendments.
In the coming days we can expect the CERC to further detail out the mechanisms it has set out under the Principal Regulations to ensure that the objectives of transparency and fairness are further secured.
The views, thoughts, and opinions expressed in the article belong solely to the authors, and not necessarily to their employers, organizations, committees or other groups or individuals to which they are affiliated.
About the Authors
Mr. Joysurjo Roy is an Associate at Khaitan & Co.
Ms. Aribba Siddique is a Fourth-Year student from Amity Law School, Kolkata, and is a Senior Editor at IJPIEL.
Managing Editor: Naman Anand
Editors-in-chief: Jhalak Srivastav and Muskaan Singh
Senior Editor: Abeer Tiwari
Associate Editor: Aribba Siddique
Junior Editor: Kanishka Bhukya
Preferred Method of Citation
Joysurjo Roy and Aribba Siddique, “Addressing Mismatches and Equitable Liabilities: CERC’S Inter-State Transmission Charges and Losses Regulations” (IJPIEL, 12 May 2023)