Press note

New Delhi October 30, 1999

CERC is 14 months old. The CERC and SERC's were created in order to give assurance to investors and consumers that electricity tariff decisions in particular, would be made in a transparent and consultative manner by an independent body. The “Consultation Paper on Bulk Electricity Tariff” has been circulated for public comment in pursuit of this objective. The Commission has already held meeting in Shillong, Mumbai and Bangalore, which were attended by the regional constituents as well as researchers, professionals civil society groups. The last meeting is to be held at New Delhi on October 30,1999. The Commission will use this consultative process to formulate and issue Tariff Guidelines for generators and transmission entities within its jurisdiction.

The mandate of CERC

The ERC Act 1998 requires electricity regulatory commissions to promote competition, efficiency and economy in the electricity industry, encourage investment and safeguard the consumer interest. The Central Commission has the following statutory responsibilities, which it exercises as a quasi-judicial body:

a.  The regulation of tariffs of central generating stations
b.  The regulation of tariffs of electric power generated and sold across states in a composite package
c.  The regulation of inter-state transmission tariffs
d.  The regulation of inter-state transmission
e.  In addition, the Act also gives CERC an advisory role in relation to power and the environment, to advise government on issues relating to electricity, to prepare and publish guidelines, and arbitrate on certain issues.

Work agenda in the CERC

Since its inception, the CERC has taken several initiatives to establish its regulatory framework, discharge its substantive functions relating to tariff setting and the regulation of interstate transmission and to strengthen the institutional environment.

Regulatory framework

The following steps have been taken to establish the regulatory framework:

Central Electricity Regulatory Commission

a. Notification of the central advisory committee in December 1998, as required under the ERC Act and convened two meetings of the committee.
b. Notification of the Conduct of Business Regulations, which state the way in which the Commission will function, and the fees to be charged by the Commission for various proceedings.
c. Notification of its regulations for the appointment of consultants;
d. Preparation of its recruitment and service regulations for its staff. These are with the government for approval;
e. Preparation of the annual filing requirements for transmission entities. Similar guidelines are being prepared for generation and will be notified shortly.

Substantive functions

The Commission has been active in a number of areas, listed below, relating to the discharge of its substantive functions

a. Directives to Power Grid Corporation of India Limited for preparing a National Grid Code and other organisational arrangements.
b. Heard respondents on the Grid Code apart from publicising it widely for eliciting public opinion. Order expected end October 1999.
c. Heard respondents on the draft notification on Availability Based Tariff which government had passed on to the CERC. Order expected early November 1999.
d. Heard nine petitions for renewal of tariffs originally notified by the government
e. Prepared and issued a “Consultation Paper on Bulk Electricity Tariffs”. Meetings are ongoing. Some ideas in the Conduct of Business Regulations of the Commission and the Consultation papers reflect the views of the commission:
1) Tariffs should be predictable and fair.
2) As far as possible tariffs should not encourage a cost plus system but should encourage performance based tariff regulation.
3) Tariff regulation is a poor substitute for competition and market determination of prices. Where necessary tariffs should simulate the effect of competition
4) Tariffs should promote efficiency.
5)
6) As far as possible tariffs should be certain at the time of the transaction and not changed retrospectively.
7) The entire commercial agreement associated with a particular tariff should be contractually enforceable, especially with regard to payment of dues.

The commission will in the next few months have in place the framework for bulk tariff determination, which will consist of the Indian Electricity Grid Code, an associated order on Availability Based Tariff in the interests of grid discipline and an order on Tariff Principles and Norms. This structure will then be applied for the determination of tariffs for individual generating stations and for transmission.

Institutional strengthening

1. The Commission is a leanly staffed organisation since its service regulations have still to be approved by the government. However even when it is fully staffed it does not propose to do everything in house. It intends to utilise external experts to assist it in its functions so as to enable a continuous cross fertilisation of ideas between its staff, investors, other stakeholders, the academic and research community. Accordingly, it has initiated the following studies through consultants:
a.     Cost of Capital for electric power utilities awarded to CRISIL.
b.     Depreciation norms for electricity
c.     Determinants for private investment in Transmission.
d.     Environmental norms and the agenda for CERC.
e.     Feasibility of the RPI-x methodology for bulk tariff determination in India.
f.     Evaluation of norms for tariff determination
g.     The system and end use costs of frequency variation, load shedding, over/under frequency supply.

2. The Commission is acutely aware of the need for synergy between it and the state level regulators in the interests of efficiency of regulation. In order to ensure close and adequate interaction with the state commissions, the CERC along with other state commissions has promoted a Forum of Regulators, which has already held two meetings.

3.   Independent regulation while of recent origin in India has a long history in the United States. CERC proposes to enter into a Memorandum of Understanding with the Federal Energy Regulatory Commission (FERC) of the USA for a partnership. This is the first time that FERC has entered into a partnership with any commission in the world. A similar Memorandum of Understanding is being entered into with the Department of Telecommunications and Energy of the Commonwealth of Massachusetts, USA.