a) Unlike current practise, separate availability targets will be fixed for peak and off-peak periods. Unlike today there will be no incentive for overachieving target availability. The recovery of fixed charge will be linked to the achievement of these availability levels. Non achievement of target availability levels will result in a reduction in the recovery of fixed charge at accelerating rates of penalty.
b) The opportunity for earning a surplus higher than the allowed return will lie only in getting despatched. During peak times, the generator will earn a regulated energy charge for energy despatched. Very efficient generators will have the opportunity to earn an additional surplus (over and above availability linked return) by reducing their actual variable costs below the regulated energy charge. During off peak, the market will equilibrate demand and supply at a certain price. All generators, with actual variable costs below this price, will have the opportunity to earn additional return (over and above the availability linked return) by supplying energy at off peak. Generators who cannot be despatched during off peak will not earn any incentive above the availability target linked return.
c) During off peak, a cap will be imposed on the market price for energy, which will be the same as the regulated energy charge. This will guard against the possibility of sharp peaks in energy prices, due to short term shortages in supply.
d) The Commission is currently considering the proposal for Frequency linked Charge for Unscheduled Interchange (FLCUI), which has been proposed by the Central Government and is supported by the CTU as a measure to introduce grid discipline. This proposal can be meshed with this proposal for introducing competition at off-peak, since it relates only to unscheduled interchanges of energy while the proposed scheme for competition relates only to scheduled interchanges of energy.

5.4.5.2 What will this proposal achieve? The proposal for an off peak competitive market will establish a rudimentary market for power which does not exist today. It will encourage SEBs and their successors to contract directly with generators. It will allow the market to establish a market price for power differentiated by customer. An SEB with a poor payment record may be charged higher by the generator (within the price cap) than an SEB with a good payment record. It will allow SEBs and generators to vary the risk return by varying the ration of long term supply contracts and spot purchases. It will induce SEBs to consider managing load more effectively since the costs of not doing so will be attributable directly to them. An agency will need to be identified, which will act as the power exchange. recording contracts, recording sales, raising bills and ensuring settlement. In the initial stages. the Regional Electricity Boards are the best equipped to perform this task.

5.5 Issues in Generation Tariff

5.5.1 While making SEBs responsible for the shares allocated to them. who should be responsible for the unallocated share of the generator which is reserved for the Central Government? One option is that it should be payable by the Central Government. If the Central Government allocates this to an SEB it will become payable by that SEB. Where the SEB defaults on such payment, it will be the contingent liability of the Central Government. Another option could be to transfer this share to the generator, who could contract it out on a commercial basis. The third option is to contract it out for use as reserve capacity, where feasible and recover the costs as a part of the RLDC charge.

5.5.2 The CEA proposal for redefinition of operational norms formulated in 1997 has adopted the intrusive ROR approach. Is this an efficient way of defining norms where capital investments, technology and fuel choices and location are taken as given and factored in while determining the norms? Would it be possible to define norms more broadly so that even the areas of technology and fuel choice and location become risks transferred to the supplier, rather than the consumer?

5.5.3 How feasible is this scheme for partial competition? The scheme is workable and can show results through a reduction in sale price in any region where there is an energy surplus during off peak. Where there is no surplus the scheme can still be implemented. The price cap will restrain any undue exploitation of shortage conditions by the suppliers while even short term surpluses will induce generators to compete to supply at prices lower than the capped price. Are there any other barriers to its implementation?

There is considerable scope for reduction in generation tariffs. Such reduction need not impact the profitability of generators if adequate steps are taken by them for efficiency enhancement. The Commission will assist this process by redesigning tariffs, allocating costs to charges, which are differentiated on the basis of availability, active and reactive energy supply. There is also the possibility of introducing a limited level of competition inGeneration, during off peak, when energy supply may be in surplus. This is a significant advance over the existing system, where competition is only visible at the entry point. While the extent and volume of energy, sold under competitive conditions, during off peak, may be limited, the spill over benefits of establishing a long term or spot market, for the trading of energy, are expected to be considerable. It can reorient the entire system of power purchase in the SEBs and their successors, and result in the emergence of a market for financial derivatives in power sale and purchase. The efficiencies achieved in bulk power tariffs will have to be replicated in retail supply if the final consumer is to benefit. State level regulators will have to achieve this objective. At the central level, the primary challenge is to incentivise generators to reduce costs, without impacting the financial viability of responsive generators. Simultaneously a market will be established for trade in power. This will be the precursor to the establishment of full competition in generation in the medium term.