1) What are the prime challenges for the power sector currently in India?

in India? What major regulatory/ policy changes

will affect the power sector?
Shortage and rising prices of fuel and poor financial condition of distribution companies pose challenges to the power sector
today. A lower-than-expected increase in domestic coal production has added to the demand-supply gap. To tide over this
issue, the Government of India is seeking to modify the Standard Bidding Documents (SBDs) for Case 1 and Case 2 to
allow energy charge as a pass through. The rationale! Given the uncertainty of fuel availability, asking the developers to
factor in the fuel risk over a period of 25 years would mean and result in inefficient and distorted price discovery. While this
is true, the long term solution lies in making the coal sector more efficient. Privatisation of coal mining could be thought of.
We need to have coal regulator at the earliest to improve efficiency in coal production. Ministry of Power should also ensure
that in its attempt to simplify the SBD it does not end up complicating the processes. CERC has already given a statutory
advice in this context.
There are other critical issues like Land acquisition, Environmental and Forestry clearance, Rehabilitation and Resettlement
which need to be addressed. On gas front we need greater flexibility in utilization of allocated gas, enhanced efficiency in
import. More importantly we need to strengthen the downstream petroleum and natural gas regulator.
There is an urgent need to undertake tariff revisions on regular basis, ensure tariff adequacy and rationalise tariffs to
improve the deteriorating financial condition of distribution companies.
2) The financial stability for majority of the countrys DISCOMs is a key concern for the industry. What type of
challenges do you face in regulating tariffs?
The biggest challenge for the Central Commission is to balance the interest of both the beneficiaries and the generators.
While regulating tariffs, we take into account the objectives of safeguarding consumer interest as well as ensuring recovery
of cost of electricity in a reasonable manner. Our focus has been on increasing the availability of the power plants and
improving generation efficiency by providing incentives and disincentives in tariff norms to bring more value to the
consumers. Poor financial health of the distribution companies has affected the entire value chain in power sector today.
Generation capacities are getting stranded, as discoms prefer to do load shedding rather than buying power. There have
been instances of delayed payments to generators and transmission companies. This is a serious challenge and needs to
be addressed by the SERCs and State Governments at the earliest.
3) Coal is the primary commodity that is causing electricity price hikes. Are there any other reasons causing price
pressures?
While pricing of fuel has been exerting immense pressure on electricity tariffs, inflation in general and the depreciating
Indian Rupee in particular are also putting pressure on other cost components which will lead to increase in tariffs.
4) How would you assess the performance of the power sector during the on-going 12th plan?
We over-achieved the capacity addition target and installed about 20622 MW in FY 2012-13 against the target of 17956
MW. This is a good score given the challenge of fuel shortage. Our peak deficit which was 10.6% during FY 2011-12 was
reduced to 9% during FY 2012-13. Another positive indicator is that the State regulators are revising retail tariffs. I hope this
trend will continue in the years to come.
5) What are the key initiatives taken by CERC to encourage energy efficiency & conservation in India?
The Central Commission induces efficiency in operation of the power plants by tightening their operating norms in its tariff
regulations. Benefits of efficiency gains are shared with the buyers and in turn with the end consumers in every successive
control period of tariff regulations.
Given the nature of functions, the Central Commission does not directly deal with the end consumers. Consumer end
energy efficiency and conservation are taken care of by the SERCs. The Central Commission provides secretariat services
to Forum of Regulators. DSM and Energy Efficiency have been key focus areas for the Forum of Regulators (FOR). The
Forum has evolved model DSM regulations and a structure of Time of Day (ToD) tariff. It also organises capacity building
programmes on DSM and Energy Efficiency on regular basis.
6) What are CERCs observations on renewable energy capacity addition?
Today we have about 29 GW of grid connected capacity based on renewable energy sources. Renewable energy capacity
addition during the 11th Plan was 14.7 GW as against 6.7 GW in the 10th Plan. MNREs target for capacity addition during
the 12th Plan is 30 GW. Forum of Regulators (FOR) has very recently carried out a study on assessment of achievable
potential of New and Renewable Energy resources in different States during the 12th Plan Period, determination of RPO
trajectory and its impact on Tariff. The study revealed that sufficient resources are available to generate power from
renewable energy and about 40 GW capacity can be added in the system provided some of the barriers like lack of
transmission infrastructure can be removed.
7) Smart grids are being promoted as the answer to most of the demand-supply related issues for the power
sector. Whats future of smart grids in India?
While capacity addition and facilitative framework of choice is important for adequacy of supply, it is equally important to
ensure that the existing assets are utilised in more optimum way. In this scenario, smart grid technologies present an
important component of potential solution. These technologies provide greater visibility and control to utilities over their
assets and services. They make electricity grid self healing and resilient to system anomalies. Last but not the least, these
technologies empower stakeholders in controlling their transaction across the systems. We need to build greater awareness
about the potential benefits of these technologies among the regulators and the utilities. Smart Grids are capital intensive
and their benefits accrue over a longer time span. We should also immediately take up pilot projects to demonstrate cost
effective solutions.
8) What are your views and expectation from the recently formed Coal Regulator? How would CERC and the Coal
Regulator share responsibilities of the power sector?
As I said we need coal regulator at the earliest to improve efficiency in coal production. Coal is the most important input for
power generation. The coal regulators responsibility for power sector would be to ensure quality and quantity supply of coal
for power generation. The role of coal regulator and CERC would be complementary to each other. Efficiency in coal mining
and rationalisation of coal pricing will be an aid to CERC in achieving the objective of electricity tariff rationalisation.

Draft Guidelines CERC
The Central Electricity Regulatory Commissions draft tariff guidelines for power utilities applicable for 2014-2019 have potential to reduce
aggregate annual profits of CRISIL-rated utilities by Rs 1,400 crore, or nearly 7 per cent of their profits in the last fiscal.The rating agency
CRISIL, however, believes that the guidelines will not impact the credit risk profiles of these utilities.
According to Pawan Agrawal, Senior Director, CRISIL Ratings, The guidelines retain the crucial feature of availability-based fixed-cost
recovery, which covers debt servicing for these utilities. This will help them maintain stability in cash flows, and therefore, in credit quality.
This covers 13 CRISIL-rated power utilities which come under the purview of CERC.The draft guidelines stipulate a change in the manner
of reimbursement of tax, a stringent incentive structure and stricter operating parameters for utilities. The adverse impact of these
provisions is only marginally offset by benefits such as higher escalation rate for operating and maintenance expenses and increase in late-
payment charges.

The most important stipulation in the draft guidelines is the change in reimbursement of expense on tax relating to return on equity, which
will now be linked to actual tax outflow, rather than the applicable statutory tax rates as in the existing guidelines. The guidelines propose
that for generation companies, the incentive be calculated on plant load factor, rather than on plant availability factor as in the current
norms.Generators will now have to share a fourth of their incentives with beneficiaries. For transmission companies, the threshold for
availing of incentives has been enhanced.