Inter state transmission costs on average, account for less than 2% of the cost of power delivered at the retail end. Transmission tariffs are important therefore, not because of their cost impact on the delivered cost of power but because of the signals they provide for incremental investment, maintenance of current assets and efficient management of the transmission system. Adequate transmission capacity is necessary for trading in power and for the transfer of power with the objective of cost optimisation. This chapter reviews the regulated entities, primary objectives of the Commission while setting transmission tariffs, the strategies it intends to follow and some of the important issues in tariff design. Some general issues concerning tariff have already been discussed in Chapter 4. The reader is advised to keep these in mind also.

6.2 Regulated Entities and Services

The transmission tariffs of POWERGRID and any other transmission licensee operating in the inter state transmission system are to be determined by the Commission. In addition the transmission tariff for all interstate transmission is within the regulatory jurisdiction of the Commission. The Commission has also to determine the charges to be paid to the RLDC by the constituents of regional grids. As of today there are no transmission licensees. In Petition No 1/1999 relating to the Indian Electricity Grid Code, POWERGRID has been entrusted the task of proposing the principle and procedures to be followed for the grant of licenses to transmission entities.

6.3 Objectives of Tariff Setting in Transmission

The transmission system in India, faces challenges, similar to those in generation. The principal challenge is of fixing accountability for costs incurred in investments and improvements in operational efficiency. The Commission therefore, intends to achieve the following objectives through its tariff regime.

(a) Ensure the productivity of existing and future investments.
(b) Ensure adoption of the least cost approach to incremental investments.
(c) Provide international quality transmission services.
(d) Maintain the security of the regional grids.
(e) Adoption of efficient procedures for scheduling and despatch.
(f) Promote the development of a national grid

6.4.1 Currently, the costs of the services provided by POWERGRID are added together (bundled) and charged to the SEBs / STUs in proportion to their energy drawls from the inter-state grid. Details of the various services provided in transmission, data required for the calculation of separate charges for these services and the parties involved in these transactions are given in Annexure IV. Clearly, the costs for providing different services should be unbundled to provide better price signals to those who are using these services and to ensure that one service is not cross subsidising the other. Transmission services can be unbundled by classifying them in terms of the nature of cost incurred in their provision. Unlike generation, the share of fixed costs is much higher in the total cost of transmission.

6.4.2 Services which impose a fixed cost on the system

The services, which impose a fixed cost on the system, are the following:

(a) Provision of transmission facility, including reserve.
(b) Provision of adequate reactive power support and voltage control
(c) Investment planning
(d) Reinforcement costs, or the cost of providing additional capacity for accommodating an additional transaction.
(e) Costs incurred in the RLDC for operation and maintenance of the regional grid.

The transmission service provider makes available all these services, irrespective of whether the flow takes place or not. These are the sunk costs of the transmission and system control agency.

6.4.3 Services which impose a variable cost on the system

The following components of variable cost, in the transmission system, can be isolated, though the most significant cost is on account of transmission loss.

(a) Transmission loss
(b) Billing and collection costs
(c) Analysis, arrangements of transactions and the incremental operational costs of matching demand with supply on a real time basis. This may comprise variations in the transmission loss and the congestion costs imposed on users due to accommodating incremental transmission.

Currently, transmission losses are not charged as part of transmission cost. They are included in the tariffs payable by the SEB or its successor to the CGS. The other costs are rolled into the single part transmission charge.

6.5 Types of Transmission Contracts

The existing system does not distinguish between the nature of demand of the user. A single agreement allows a user to connect to the grid and draw energy as and when required. There is no requirement for the payment of a connection charge, or the need for contracting for a minimum level of load. If the user does not draw energy he does not pay. The structure of demand however is more complex. Energy transactions can be classified as below into the nature of demand imposed by them.

a) Firm Power is the power that may be interrupted only for system emergencies. Such services may be provided either on long-term or short-term contracts. Typically, user should pay for the capacity, which is reserved for his use.
b) Non-Firm Power services permit the transmission service provider to interrupt services at any time. The commitment of the service provider is lower. Hence they do not need reserve transmission capacity to service load at all times. Such services could be sub classified as:

1) Curtailable Services that provide for interruption for specified conditions only and hence provide more surety of supply to the user.
2) As Available Power transfers which are agreed in real-time operation during the course of the day.

Annexure V classifies these transactions and suggests the possible allocation of various components to each type of transaction. Broadly firm services require the payment of the fixed costs related to the system while non-firm services would require only the payment of the variable charge.