In an article carried by Time of India it is described how coal shortage has resulted in the deduction of coal fired capacity to the extent of 5 GW, with 30% reduction in imported coal fired generation. The resultant impact on energy rates in power exchanges with rates going up to ?. 20 per unit. These issues are discussed further.

2.         During the period 01 to 14 October the average MW of Super Thermal Plants  of Northern Region  is summarized as under.

Following stations are identified for low generation

            In case of private sector IPP's supplying home-state the privatisation of power has given poor results with Adani-Rajasthan for Kewai, Talwandi Sabo Sterlite for Punjab and CLP Jhajjar for Haryana and R Infra – Rosa for UP.

            The first lesson learnt is that it is the responsibility of the IPP (owner) to arrange fuel, while failure to arrange fuel adversely impacts the home state due to power shortage and resulting power cuts..

            In the case of Kawai, the IPP had submitted bids with two rates, one based on indigenous coal and second based on imported coal. The Rajasthan State authorities queried on which rate the bid is to be evaluated . The IPP Adani replied in writing that the bid be evaluated on domestic coal  and committed that it agrees to pay tariff based on domestic coal, even if imported coal is  used.

            Having won the bid on the basis, now Kewai station is operating at average 611 MW as against a capacity of 1320 MW. The IPP was required  to get imported coal if there was shortage of domestic coal as per its commitment to the  bid process authority.

3.         The 1980 MW Sterlite owned plant at Talwandi Sabo was allowed “Coal washing charges” of about Rs 800 crore as per Supreme Court order but now it is unable to operate the station even at 50%.

4.         In case of Reliance Infra, it is operating the Sasan UMPP at close to 100%  (being a pit  head station), but is running the Rosa TPP at around 52% only. 

5.         It has been observed that under shortage conditions the deficit states are buying power from exchanges at rate going up to ?. 20 per unit. This implies that the seller entity (IPP or Generator) is making huge profit while the buyer Discom would incur huge loss due to import of high cost power.

            However, such practice goes against the letter and spirit of Electricity Act 2003 section 61 (d) which specifies the principle.

            “Safeguarding of consumer interest and at the same time recovery of cost of electricity in a reasonable manner”

6.       The Electricity Act 2003 further provides a safeguard against high energy rates under shortage conditions under section 62 (a) of Electricity Act 2003 the appropriate Commission has been empowered to fix minimum and maximum limits or ceiling under shortage conditions. In fact, each SERC is free to take corrective step by fixing cap on rate of electricity if it is going as high as ?. 18 or ?. 20 per unit.

7.         Experience feedback from privatisation and competition in England /UK. This feedback is essential as it gives past examples of how, with privatisation and competition, the UK Govt. took steps to control prices of electricity and safeguard consumer interests by imposing price caps.

7.1       The comptroller and auditor general of the UK issued a report on 05^th January 2001 on the subject “Giving Domestic Consumers as choice of Electricity supplier”.

            Extract of the report “Giving Domestic Customers a choice of Electricity Supplier” are quoted.

Page -1, Para 2 & 3

“Successive Governments have taken the view that competition is the best way to protect customers' interests because it increases choice and gives companies an incentive to lower prices and improve customer service. Fourteen regional electricity distribution and supply companies were established at privatisation, in 1990 and 1991, and were initially given a monopoly of supply to domestic and smaller business customers in their areas. The sale prospectuses of these companies stated, however, that the Government was committed to introducing competition in electricity supply for all customers by 1998. Meanwhile, to protect customers from the electricity companies' local monopoly, Ofgem has regulated prices and quality standards.

3 In line with Government objectives, Ofgem introduced domestic electricity supply competition during September 1998 to May 19992, following the introduction of competition into the domestic gas market between 1996 and 1998. Ofgem will continue to regulate the prices and quality standards of electricity suppliers until they consider that competition is sufficient to meet their principal statutory objective of protecting the interests of consumers, having regard to their other duties including the protection of vulnerable groups”.   ( in UK the Regulator is the officeof gas and electricity markets, ie Ofgem).

Page -2, Para 6

“6. The 6.5 million customers who had changed their electricity supplier by June 2000 have together seen their bills fall by £299 million since the start of competition. This is a 15 per cent reduction in real terms, an average of £45 per customer5. About half of this reduction is attributable to competition.

(1) The 6.5 million domestic customers who have changed their supplier have saved

15 percent of the electricity bills in real terms since the start of competition, half of which is due to competition and half due to price cuts”    This  shows that in the UK even with introduction of competition  the Regulator had to impose price cuts.

Page 13 para 1.6

“1.6 Ofgem has statutory responsibility for licensing companies in the electricity industry. They have a duty to exercise their functions in a manner best calculated to ensure that: all reasonable demands for electricity are met; licence holders are able to finance the carrying on of their licensed activities; and to promote competition in the generation and supply of electricity. Ofgem can use licence conditions to cap prices and a combination of licence conditions and standards of performance to set quality standards in the industry. The  Utilities Act 2000 made Ofgem's principal objective protecting the interests of consumers, wherever appropriate by promoting effective competition. The Act also requires that Ofgem consider the interests of certain groups including the disabled, pensioners, people on low incomes and people who live in rural areas. Under the Act, Ofgem shares all these responsibilities with the Secretary of State. In practice, however, the Government has defined their rôle as setting the objectives and the framework of regulation, while the regulators, including Ofgem, independently fulfil their duties within this framework”.

Page 13 para 1.8 (a)

“1.8     The Utilities Act 2000 changes the framework of the regulation of the electricity and gas industries. With effect from November 2000, the Act:

a)         Made protecting consumers' interests Ofgem's  principal objective, wherever appropriate by promoting competition, and made other changes referred to in paragraph 1.6 above”.

Electricity consumers in Great Britain were able to achieve savings of £ 156 million due to the price cap imposed by the Regulator OFGEM (Office of Gas and Electricity Markets). By comparison the savings of consumer were estimated to be £ 143 million on account of competition. This shows that even in the competitive UK market, it was necessary for regulators to protect consumers by imposing price-caps, the impact of which was more than the impact of competition.

8.         From the feedback / experience of Great Britain it is clear that

            “Govt. introduced utilities Act 2000 which made it the Principle objective of regulator ofgem to protect consumer interests”

            The conclusion is that even in Great Britain the regulator had to use its statutory authority to impose price caps so that the consumer interest can be safeguarded.

9.       In India the present case of coal shortage leading to spike in energy rates, it was necessary for state regulators as well as CERC to intervene and impose price caps to prevent excessive profiteering by IPPs and also to ensure that unbearable burden is not put on consumers of Discoms.  Discoms are  constrained to purchase high cost power in order to limit the power cuts  .  This leads to a deterioration   of Discom finances  which are already stressed. From this angle also price caps on merchant power plants are required and the present instances of exploiting shortage  by raising the rate  to the range of Rs 20 per unit in energy exchange must not be allowed. As per sec 62 (1)  a  it becomes the duty of the Regulator  to impose price caps.

10.    Since coal shortage is recognized as a major factor causing a hike in power rates, the Power Ministry must stress for ending future coal shortages  otherwise the results of 2021  would repeat. In particular we refer to an interview by the then Coal Secretary GOI in 2016 ( Sh Anil Swarup)  who stated that in 2016 he had finalized an action plan over the next 5 years  for meeting coal shortages.  However, this action plan was not implemented and now the coal secy GOI, has retired  and it is up to the end user i.e. the Ministry of Power  to take up the issue of coal shortages with concerned ministries  so that the crisis of 2021 does not repeat. It is also requested that one expert committee with a CEA member should be constituted immediately to enquire about the coal shortage resulting in Power crisis so that the reason for the present crisis is technically analysed and accordingly action is taken against those responsible for the crisis.

11.    It is also suggested that the subject of putting a cap on profiteering  by IPPs  may be discussed and finalized  in the Forum of Regulators  in the letter and spirit of sec 62(1)a immediately at top most priority to stop black marketing in energy exchange mostly by private operators during crisis.

Thank you with regards.

Sincerely Yours

Shailendra Dubey

Chairman