Power Sector Regulation: Electricity Act, Discoms, Tariffs and PPAs
Note
Discom financial distress, not generation shortfall, is the structural fault-line in India's power sector. The Electricity Act, 2003 built a three-tier architecture: CERC for interstate transmission and wholesale tariffs, SERCs for retail tariffs and distribution licensing, and APTEL for dispute resolution. Discoms accumulate AT&C losses and debt; UDAY and the revamped RDSS address this partly. Tariff-setting under the National Tariff Policy, PPAs between Discoms and generators, cross-subsidy surcharges, and open-access rights together determine sector viability and the bankability of renewable energy projects.
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Questions on this topic
Consider the following pairs regarding the regulatory framework for electricity in India under the Electricity Act, 2003:
- State Electricity Regulatory Commission (SERC) — Determines tariff for and approves power purchase agreements (PPAs) of distribution licensees procuring power within the state
- Central Electricity Regulatory Commission (CERC) — Regulates tariff of generating stations owned or controlled by the Central Government and inter-State transmission of electricity
- Fixed charges (capacity charges) in a Power Purchase Agreement — Payable by the procurer only in proportion to the actual quantum of electricity drawn from the generating station
Which of the pairs given above is/are correctly matched?
Explanation
Under the Electricity Act, 2003, the jurisdiction over tariff determination and PPA approval is split between the Centre and the states. Section 86 of the Act assigns State Electricity Regulatory Commissions (SERCs) the function of determining tariffs for purchase, transmission, and supply of electricity within the state, and approving PPAs entered into by distribution licensees — Pair 1 is correctly matched. Section 79 assigns the Central Electricity Regulatory Commission (CERC) jurisdiction over tariff of generating stations owned or controlled by the Central Government and over inter-state transmission — Pair 2 is correctly matched. However, Pair 3 is incorrectly matched: fixed charges (also called capacity charges) in a PPA are NOT linked to actual power drawl. They represent the cost of making generation capacity available — covering capital cost recovery, operation and maintenance, and return on equity — and must be paid by the procurer whether or not it actually draws power. This is a cardinal feature of two-part tariff PPAs in India: the fixed/capacity charge is a 'take or pay' obligation. The Kerala KSEB–NTPC Kayamkulam case illustrates this precisely: KSEB had to remit the full fixed cost to NTPC even during years when electricity was infrequently sourced due to high Naphtha prices.
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