BW Communities

A Question Of Access

BW Online Bureau Nov 08, 2014

<?xml version="1.0" encoding="UTF-8"?><root available-locales="en_US," default-locale="en_US"><static-content language-id="en_US"><![CDATA[(Graphic by Satkar J. Yonzon) It started out as an exercise to remove hurdles in “operationalising open access in the power sector”. But the task force under Member Planning Commission B.K. Chaturvedi, which was entrusted this task, has reversed the argument. Sparking off a new debate, it said that there is need for greater regulation in power trading and in order to prevent ‘gaming’ in the sector, some crucial sections in the Electricity Act have to be amended in “public interest”. The idea is to amend Section 62(1) (a) of the Electricity Act and explicitly bring power trading under regulation. This is essential to prevent multi-level trading that power traders are allegedly engaged in right now, which raises the price of traded power substantially. But according to Power Trading Corporation, India’s largest power trading company, this is a retrograde step. “I don’t consider the proposed amendment in the spirit of the Act,” says T.N. Thakur, chairman of Power Trading Corporation. “We have given our thought to the task force in writing.” Other traders such as Tata Power Trading Company, Adani Enterprises, Reliance Energy Trading and NTPC feel that there is no point in regulating a price that is derived through a price discovery route and that too in an open and transparent manner. Under open access, a Delhi consumer, for instance, wanting to use power from Orissa would have had to pay a surcharge to Delhi. This surcharge — derived through a complex formula — serves as compensation to Delhi. Open access forms the cornerstone of the Electricity Act to ensure that market forces are introduced in the Indian power sector. All state governments had to facilitate this measure. However, this has not happened. The task force’s report, submitted a few weeks ago, a copy of which is with BW, says “…from discussions it was confirmed that no consumer in any state has availed of open access… and in fact in many states the provisions of the Act have not been operationalised so far”. The reason is simple. Every time a state overdraws from the grid, it is being charged up to Rs 10 per unit as a punitive unscheduled interchange (UI) charge. As a result, the Rs 10 per unit is indirectly acting as the benchmark price for traders to ratchet up trading of power. This, in turn, acts as a hurdle to open access where prices are in the range of Rs 3-6 per unit. According to the task force, this “is acting as a surrogate trading mechanism and giving perverse incentive to generators to earn higher revenues…” The task force pointed out states that claim to have surplus power have large unmet demand within the state.Data reveals that over the past 3-4 years the price of a majority of traded power has gone up from Rs 2-3 per unit to Rs 6-8 per unit (see ‘The Power Shift’). The task force recommends power trading be brought under regulatory purview to ensure power (surplus or otherwise) is actually available for open access consumers. It also strongly says UI charges should be “prevented from becoming a vehicle for trading by default and that utilities are deterred from gaming in the sector”. While it has been recommended that the open access route needs to be operationalised as this would provide a “legitimate window for market forces”, both power and finance ministries are opposed to any amendment. The power ministry says the task force has gone beyond its mandate of open access and not on markets and trading. The finance ministry, through its representative, says “any tinkering with the fledgling power market would be retrograde”. Despite these observations, the task force still recommends an amendment with a strong message: since the law does not allow multi-level trading and indirect sales, “what cannot be done directly should not be done indirectly”. kandula(dot)subramaniam(at)abp(dot)in (Businessworld Issue 18-24 Nov 2008)  