Power Sector Cerc Report

CENTRAL ELECTRICITY REGULATORY COMMISSION
Explanatory Memorandum for draft CERC (Regulation of Power Supply),

Regulation,2010
1. Default in payment of dues has been a major issue in power sector. The
Government of India has taken steps to resolve this issue by prescribing a
scheme for settlement of SEB dues by securitization through State Government
bonds guaranteed by RBI. In March, 2001 it was resolved in a conference of Chief
Ministers to set up an expert group to recommend a one time settlement of all
outstanding dues of CPSUs. On the recommendation of the expert group, a
scheme was brought about w.e.f. 17.04.02, to ensure timely payment of current
dues. The scheme provided for signing of Tripartite Agreement between the
Government of India, the respective State Governments of India and Reserve
Bank of India. This scheme had provisions for reduction in supply in case of non-
payment of dues of Central Public Sectors Undertakings (CPSU) or non-
maintenance of the required Letter of Credit by State Utilities. This scheme is
effective upto 31.10.2016.
2. The Commission, vide letter dated 16.12.1999, had directed CTU to forward the
procedure for regulation of power supply due to non-payment of dues. CTU, vide
letter dated 16.06.2000, forwarded draft generic procedure. The Commission vide
Order dated 21.06.2000, gave an interim approval for this procedure, to be
followed till the final approval of procedure after hearing of the interested parties.
This procedure was based on physical regulation by opening of transmission
lines/ICTs.
3. After hearing the interested parties, the Commission, vide Order dated
11.01.2002, have the final approval of the generic procedure for power supply
regulation on commercial grounds. The validity of this generic procedure had
been extended by the Commission from time to time. But it is felt that this
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mechanism should be specified through regulations instead of extending our
order repeatedly.
4. Though this procedure had taken care of technical as well as commercial aspects,
there were few inherent problems of physical regulation in this procedure. As
mentioned in the Order, it was extremely difficult to control power flow for the
purpose of curtailment of power supply to a specified beneficiary during the time
of regulation, in view of the fact that power would find an alternative path in the
integrated grid to the regulated entity. Further, the opening of lines/ICTs for the
purpose of regulation would had an impact on grid security..
5. A draft regulation on “Generic Procedure for Curtailment of Power Supply” was
issued by the Commission on 19.05.2005, seeking objections /suggestions
/comments of the stakeholders with the objective of formalizing the procedure
specified earlier. However, the regulation could not be finalised due to some
unresolved issues regarding physical regulation.
6. Meanwhile a committee constituted by Government of India in May,07, under
Chairmanship of Shri A.K. Khurana, AS, MoP had inter-alia given following
recommendation regarding provision for Payment Security Mechanism (PSM) in
Standard Bidding Documents relating to developing transmission lines through
tariff based competitive bidding:
“In case of default by the procurer of the transmission services i.e.
default in payment of transmission charges , a trigger point of default
can be defined in the Transmission Service Agreement (TSA) . A
provision can be incorporated in the TSA whereby ( once the trigger
point is reached) the procurer of the transmission service would
authorise the concerned RLDC for altering the schedule of despatch of
lowest cost power of the defaulting utility from Central Generating
Stations . The quantum of electricity to be rescheduled for dispatch wil
be equal to the amount of default of the transmission charge. The
electricity will then be dispatched to other utilities by the concerned
RLDC during the peak hours i.e 7 p.m. to 10 p.m. The price of
electricity rescheduled will be determined as per the Unscheduled Inter
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Change rate. If the amount so realized is more than the amount of
default of transmission charge then the excess will be credited to the
defaulting utility and amount equal to the default will be credited to the
Transmission Service Provider.”
7. This recommended mechanism has been accepted and incorporated in the

Standard Bidding Documents by Central Government .However, CERC needs to
empower RLDCs through regulations to implement this mechanism.
The Empowered Committee which is chaired by Member, CERC has also desired
to expedite these regulations because the selected bidders are feeling uncertain
about implementability of the PSM recommended by Khurana Committee in the
absence of regulatory authorisation to RLDC.
8. A discussion paper on “ Remedy for Default in Payment of Dues by Power

Utilities” was subsequently floated by the Commission in May, 2007 with the
objective of finalizing the approach to the issues related to regulation of power
supply. The comments/ suggestions from many stake holders were received in
response to the discussion paper. Based on the views by the stakeholders, the
draft regulation on “Regulation of Power Supply” has been prepared and is put up
for the objection/suggestion/comments of the stakeholders.
9. The main features of this regulation are as under:

a. Regulation of Power Supply will be done only if the contracting parties have
agreed so in their contracts.
b. The regulation has no provision for physical regulation of power supply in
view of the difficulties in implementation of regulation by opening transmission
lines/ICTs. The earlier procedure formulated by the Commission were mainly
based on physical regulation and implementation of which was difficult. As the
proposed procedures do not involve physical regulation, and are to be
implemented through commercial arrangements only, the implementation of
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the procedure is simplified and would require less time for implementation in
comparison to the earlier procedure.
c. The regulation of power supply in case of non - payment of dues of the
Generator is proposed to be made effective, by reducing the drawl schedule
of the defaulting entity . This surplus power can be sold to other beneficiaries
or other buyers in market. In case no buyer is found then generation may be
reduced.
d. The regulation of power supply in case of non payment of dues of the
transmission company is proposed to be made effective, by reducing the
drawl schedule of the defaulting entity. This surplus power can be sold to
other beneficiaries or other buyers in market. The amount received from sale
of this power shall be use to pay the transmission company as first charge
basis and after payment of energy charges of generator , balance if any shall
be passed on to defaulting entity.
e. The commercial principles for settlement of the dues are prescribed in the
regulation, keeping in view the present power market scenario. In deficit
market condition the power can easily be sold to other buyer. Earlier, in non-
ABT regime this type of arrangement was not possible.
f. The proposed procedure would also be applicable for non-maintenance of
Letter of credit (LC) also, besides for non-payment of dues by the
beneficiaries in view of the provisions in Tripartite Agreement and
observations of the Hon’ble Appellate Tribunal of Electricity in order dated
28.04.2009 in Appeal No. 102 of 2008. The earlier procedure had provision
for regulation of power supply in case of non-payment of dues only. There
was no provision for regulation of power supply for non-maintenance of LC.
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CENTRAL ELECTRICITY REGULATORY COMMISSION

Explanatory Memorandum for draft CERC (Regulation of Power Supply),

7. This recommended mechanism has been accepted and incorporated in the

8. A discussion paper on “ Remedy for Default in Payment of Dues by Power

9. The main features of this regulation are as under:

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