CII PTC Conference onThe Power Market Post Electricity Act 2003: Entities, Business Models and Implications by Karthikeya Pisupati Deloitte Touche Tohmatsu India Pvt Limited October 15, 2003SESSION II : EMERGING SHAPE OF DOWNSTREAM LINK - TRANSMISSION & DISTRIBUTION

ContextMore than 10 years of Reforms in the power sectorSome states have developed their own reform ActsUnbundled their SEBs into G, T & DsSetting up of Electricity Regulatory CommissionsPrivatisation of distribution (Orissa, Delhi)Others yet to unbundle their integrated utilityNeed to give thrust to reforms (in order to realise efficiencies)Introducing markets, open access, contestability of customers etcThis presentation looks at the business models of T & D in the light of new Electricity Act, 2003

India Is Following Established Path Of Industry EvolutionMonopolyTransitionalCompetitiveItalyCanadaNew ZealandAustraliaMexicoSouth AfricaIndia (2003)Russia/CISAsset ManagementCustomer ManagementCustomer ContestabilityBrazilPakistanU.K.ScandinaviaArgentina, ChileUnited StatesGermanyFrance

States position Circa 2003 Still MonopoliesEfficiency LevelsLowHighIntegratedUnbundledD PrivatisedOrissaDelhiKarnatakaHaryanaRajasthanUPAPUttaranchalMPGujaratTNHPMaharastraPunjabAssamNagalandBiharTripuraSikkimAr.PradeshMapping based on the Report on Rating of SEBs, ICRA & CRISIL

Value Drivers - By SegmentEngineeringFinance/MarketingAssetsCustomersMonopoly ModelCompetitive ModelKeyCompetenciesManagement FocusTransmission/DistributionGeneration/RetailApplicable SegmentsPhysicalPortfolioCustomerPortfolioValue Lever

Whats the new Business Model for T & D?

Implication of new business modelFunctionally, under T & D segment of the business,TradingSystem OperationTransmission wiresDistribution wiresRetailing Non contestable consumers, Tariffs

Covered in the subsequent slides

Trading Act specifies Non-Discriminatory access to usersMultiple LicensesCERC/ SERC to fix surcharge for open access with Special treatment for captive

System OperationAct specifies Balancing & Settlement functions with LDCs

Transmission wires Inter & Intra stateAct specifies only transmission wires for CTU/ STU along with system operator function

Distribution WiresAct specifies only metered supply after two yearsAllows inset franchisingSpecial Policy for Rural distribution

Retailing Franchise consumersAct allows for special Policy for treatment of rural electrificationNational tariff Policy?

General System IssuesLong term PPA signed with IPPs & other generatorsPricing pressure on adverse hydro/ thermal mix of generationLimited number of trading players initially? (from capital adequacy, capacity to bear loss positions)Major cash flow problems need to still depend on large subsidy from state governmentAffect private participation in the existing distribution businesses of stateTariff principles (cross-sub elimination, agriculture tariffs, multi-year tariffs)Competitive bid tariff route (binding) How to define it for Trading, Wires?

What are the pre-requisites for Competitive Market? Tariff reformsTransparent/ clear understanding of Value chain and associated costsElimination of supply shortageMulti-buyer and Multi sellerPrice responsive Demand and SupplyPosition for generators to participate in spot marketAccess to Transmission and Distribution wiresInterconnectivity to trade power across states/ regions

Enablers in Electricity Act 03Allows Electricity Boards to unbundle/ transfer to new corporate entitiesUnbundling of wires & Trading businessFixed time frame for enunciating policy and action planProvision of open accessTariff policyRural electrificationThe Act is in the right directionModalities to be worked out - by States & Centre jointly..