Recently, the Ministry of Power (“MoP“) amended the Electricity Rules, 2005 (“Rules”) and issued Electricity (Amendment) Rules, 2024 (“2024 Rules”) to ease the supply of electricity to large corporations and green energy sectors. The key objectives of the 2024 Rules are easing the license requirements under the Electricity Act, 2003 (“Act”), standardising the computation of open access charges and providing mechanisms to achieve cost-reflective tariffs.
The below note encapsulates the features of the rules and shares some key compliance considerations for businesses based on our on-ground experiences as a dedicated energy law firm in India.
The Act requires every person undertaking transmission and distribution of electricity to obtain a license from the Central Electricity Regulatory Commission (“CERC”) or State Electricity Regulatory Commission (“SERC”) as the case may be. Rule 2 of the 2024 Rules introduces an exemption to this license norm. It permits a generating company or a person setting up a captive generating plant or an energy storage system2 or a consumer having a load of a minimum 25 MW (“MW”) (in case of inter-state transmission system) and 10 MW (in case of intra-state transmission system) to establish, operate or maintain a dedicated transmission line to connect to the grid. This can be done without a license subject to such company, person or consumer’s compliance with the regulations, technical standards, guidelines and procedures issued under the Act.
Transporting electricity from a generating station to the consumer involves the role of multiple agencies like transmission licensee, distribution licensee, and transmission utilities. These agencies levy certain charges. An open-access consumer who procures electricity from any state would be required to pay charges to these entities. To standardise these charges across states, Rule 2 of the 2024 Rules specified the formula for the calculation of wheeling charges. They are computed as follows:
Wheeling Charges =
Annual revenue requirement towards wheeling
Energy wheeled during the year
Additionally, the charges for using a state transmission utility4 (“STU”) network by the consumers availing short-term open access or temporary general network access 5(“T-GNA”) short-term open access or T-GNA, are capped at 110% of the charges levied on consumers using STU network on a long-term basis or general network access6 basis, as the case may be.
Further, the 2024 Rules provide that the additional surcharge levied on any open access consumer shall not exceed the fixed cost of power purchase of the distribution licensee concerned. To eliminate the additional surcharge within 4 (four) years for a person availing general network access or open access, the additional surcharge will be reduced linearly every year from the year of grant of general network access or open access. Rule 2 also provides for the non-applicability of additional surcharge on open access consumers to the extent of contract demand being maintained with the distribution licensees.
The Act requires the generation companies, transmission and distribution licensees to file an application for the determination of tariff under section 62 of the Act on revenue required by the applicant to meet the costs in relation to the applicant’s business (i.e. generation, transmission and distribution) and the tariff applicable. Rule 2 of the 2024 Rules states the tariff should be cost reflective and there should not be a gap between the annual aggregate revenue requirement8 and the estimated annual revenue from the approved tariff, except in the event of natural calamity conditions.
The 2024 Rules also mention that the gap between the annual aggregate revenue requirement and the estimated annual revenue from the approved tariff should not exceed 3%. Further, such gap along with the carrying costs at the base rate of Late Payment Surcharge9 as specified in the Electricity (Late Payment Surcharge and Related Matters) Rules, 2022 (“Late Payment Surcharge Rules”), shall be liquidated in a maximum of 3 (three) equal yearly instalments from the next financial year. Additionally, any gap between the approved annual aggregate revenue requirement and estimated annual revenue from the approved tariff existing on the date of notification of these rules, along with the carrying costs at the base rate of Late Payment Surcharge Rules, will be liquidated in a maximum of 7 (seven) equal yearly instalments starting from the next financial year.
[1] Rule 21, Electricity Rules, 2005.
[2] means a facility where electrical energy is converted into any form of energy which can be stored, and subsequently reconverted into electrical energy and injected back into the grid, Regulation 2.1(q) CERC (Connectivity and General Network Access to the inter-State Transmission System) Regulations, 2022.
[3] Rule 22, Electricity Rules, 2005.
[4] means the Board or the Government company specified as such by the State Government, Section 2 (67), Electricity Act, 2003.
[5] means short-term open access to the inter-state transmission system (“ISTS”) up to eleven months, Regulation 2.1(an) and Regulation 28, CERC (Connectivity and General Network Access to the inter-State Transmission System) Regulations, 2022.
[6] means open access to the ISTS for a particular period over eleven months, Regulation 2.1(r) and Regulation 20, CERC (Connectivity and General Network Access to the inter-State Transmission System) Regulations, 2022.
[7] Rule 23, Electricity Rules, 2005.
[8] means the revenue required to recover the costs incurred by a utility in relation to such utility’s business activities (i.e., Generation, Transmission or Distribution) in the form of charges and tariffs for a particular period of time.
[9] means the charges payable by a distribution licensee to a generating company or electricity trading licensee for power procured from it, or by a user of a transmission system to a transmission licensee on account of delay in payment of monthly charges beyond the due date, Rule 2(1)(g), Electricity (Late Payment Surcharge and Related Matters) Rules, 2022.
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