Explanatory Memorandum to Central Electricity Regulatory Commission

(Grant of Connectivity, Long-Term Access and Medium-Term Open

Access in Inter-State Transmission and related matters) (Second
Amendment) Regulations, 2011.

The Central Electricity Regulatory Commission (Grant of Connectivity,

Long-Term Access and Medium-Term Open Access in Inter-State
Transmission and related matters] Regulations, 2009 (hereinafter referred to
as the “Connectivity Regulations”) came into force with effect from
1.1.2010 after approval of the detailed procedure of the Central
Transmission Utility. The provision of open access in Inter-State Transmission
was introduced by the Commission in January 2004 with the notification of
Central Electricity Regulatory Commission (Open Access in inter-State
Transmission) Regulations, 2004 (Open Access Regulations, 2004”). There
was no separate provision for connectivity. The application for long-term
open access was deemed to include the request for connectivity.
Separate Technical standards for connectivity to the grid of Central
Electricity Authority came into force w.e.f. 21.2.2007. The Commission in
January 2008 notified the Central Electricity Regulatory Commission (Open
Access in inter-State Transmission) Regulations, 2008 (Open Access
Regulations, 2008) repealing the provisions of Open Access Regulations,
2004 relating to short-term open access in inter-State transmission. The
provisions of Open Access Regulations, 2004 continued to apply for the
long-term open access up to December 2009.

2. The basic philosophy for grant of long-term open access is that

apart from connectivity, there may be need to augment or strengthen the
inter-State transmission. However, for grant of short-term open access or
medium-term open access, augmentation or strengthening of the inter-

Page 1 of 14
State transmission system is not required to be done and the requirement is
to be accommodated within the available spare transmission capacity
due to redundancy or part utilization of the transmission capacity.

3. In the Connectivity Regulations, the word ”connectivity” has been

defined as the ‘state of getting connected with the ISTS’ and grant of
connectivity does not entitle an applicant to interchange any power with
the grid without getting either the long-term access or the medium-term
open Access or the short-term open access. There is no stipulation for
signing of BPTA/TSA for payment of transmission charges of ISTS. Further,
the Regulation 8 of Connectivity Regulations makes it mandatory for CTU
to construct dedicated lines for the thermal generating stations of 500 MW
and above and the hydro Generating stations of the capacity of 250 MW
and above.

4. The Regulation 8 of Connectivity Regulations reads as follows:

“(8) An applicant may be required by the Central Transmission Utility to

construct a dedicated line to the point of connection to enable
connectivity to the grid:

Provided that a thermal generating station of 500 MW and above

and a hydro generating station of 250 MW and above, other than a
captive generating plant, shall not be required to construct a dedicated
line to the point of connection and such stations shall be taken into
account for coordinated transmission planning by the Central Transmission
Utility and Central Electricity Authority.”

5. In view of the above provision, the CTU has been flooded with large
number of applications for connectivity. The CTU vide its letter dated 3.1.
2011 has intimated to the Commission that it has received 82 numbers of
connectivity applications corresponding to about 100000 MW of installed
capacity (Tharmal-71Nos of 95,300 MW & Hydro- 11 nos. of 4,700 MW). The
CTU has further informed that the timeframes for coming up of the

Page 2 of 14
generating stations for which dedicated lines are to be constructed is less
than the timeframe of nine months plus minimum timeline prescribed by
CERC. The CTU has submitted that being a public sector undertaking, it is
required to follow stringent procurement procedures and it is difficult for
CTU to develop dedicated lines in less than the prescribed timeframe. On
the other hand, private developers are in a much better position to
develop these lines in much shorter timeframe.

6. In view of the above, the CTU in its letter dated 3.1.2011 has sought
for directions of the Commission on the following:

(a) There is a need that application for “connectivity” should be made

along with the LTA. However the renewable and solar generation
projects may be exempted from this requirement.

(b) Provision for assigning responsibility of implementation of

connectivity lines by IPPs, if required earlier than CERC timelines,
need to be stipulated.

(c) Defining prerequisites for grant of LTA/Connectivity.

7. With regard to the issue of making application for connectivity along

with the application for the long-term access, attention is drawn to the
observations of the Commission in its order dated 27.6.2007 in Petition No.
146/2006 which is extracted as under:

“15. Before parting with this case, it would be worthwhile for us to

differentiate between providing connectivity to the transmission system and
allowing usage of the transmission system through short-term/long-term
open access. It is possible that during planning/execution stage, a
generating company/licensee may just seek connectivity in the first
instance. This will help the generating company/licensee to plan/execute

Page 3 of 14
 dedicated transmission system up to the grid. However, the generating
company/licensee may be able to firm up its delivery/injection points at a
later date, and be able to apply for open access at that stage only. Thus,
connectivity may be seen as a pre-cursor to the open access. The
requirement of connectivity of this nature was not envisaged previously
and, therefore, the Commission’s regulations on open access did not cater
for these situations. The requests for connectivity from all such persons who
are eligible to buy/sell as per the Electricity Act, 2003 should normally be
disposed of within one month of receipt of such requests. While granting
permission to connect to the system, reasonable broad design requirements
may be intimated to the person seeking connection. It is needless to say
that the person seeking connectivity must agree to:

(i) Comply with Indian Electricity Grid Code;

(ii) Reimburse the cost of inter-connection bay including bus extensions
etc;
(iii) Pay O&M expenses for inter-connection bay; and
(iv) Apply for required “open access” in due course, but in good time, and
not take for granted its approval.There appears to be some merit in
the contention of the CTU.”

8. The issue has also been deliberated in the Statement of Reasons

dated 30.10.2009 to the Connectivity Regulations where Commission has
observed as follows:

“29. We are of the view that a generating station, including captive

generating plant or a bulk consumer can not apply for long term access
or medium term open access without applying for connectivity. It is not
necessary to submit application for open access or access along with
application for connectivity. However a person may apply for connectivity
and long-term open access or medium-term open access simultaneously
in order to save time.”

9. The Electricity Act, 2003 (the Act) has de-licensed generation and it
is, therefore, expected that there should not be any barriers for setting up
of generating stations by the investors/promoters. But in actual practice,
there are a number of requirements/activities which need to be

Page 4 of 14
completed before even starting the construction of projects. These
activities are:

(a) Site identification and feasibility- availability of land, fuel, water,

basic infrastructure for the transportation of materials and
equipments to site etc.

(b) Tying up of inputs like fuel and water

(c) Environment and forest clearance

(d) Acquisition of land

(e) Tying up of loans/financing

(f) Identifying buyers

(g) Evacuation arrangements

(h) Any other statutory clearance required

(i) Investment decision and financial close

10. After feasibility, most of the activities run concurrently. It can be

seen that the investors/promoters are heavily dependent upon the
cooperation of various regulatory authorities and Government offices of
the Centre and States for completing all these activities. All the Govt. and
regulatory agencies insist on the status of various other clearances before
processing the application or firming up the linkages etc. The lenders also
insist on firm linkages and clearances before releasing funds for the
projects. Against this backdrop, it would not be advisable to define pre-
requisites for grant of LTA/Connectivity. The detailed procedure already
provides for keeping informed the CTU about the current status of the
projects.

Page 5 of 14
11. In the prevailing scenario of the power sector in India, it is even
difficult to find a buyer beforehand. The Tariff Policy mandates that
procuring agencies i.e. distribution companies should procure power only
through competitive bidding route. As such, the investors/promoters have
to depend on the action of procuring distribution companies to invite bids
for competitive procurement of power and wait for their response. Further,
it is not necessary that the investor/promoter would emerge as successful
bidder through the process of competitive bidding. Therefore, it is not
necessary that a generating station would be able to tie-up power for its
full capacity on long term basis and may be forced to sell power in short-
term or medium term open access through bilateral arrangements with
the traders or on power exchanges. The question therefore arises whether
generation activities which require much higher investment as compared
to the transmission, should be allowed to be frustrated for want of
connectivity and transmission system in the absence of long-term open
access. It would not be appropriate in the overall interest of the power
sector in the long run. In case LTA applications are not being received,
CTU and CEA would have to plan for transmission corridors taking into
account the generation potential and demand scenario in the various
regions and anticipating the power flows in the short term, medium term
and long term scenarios. Viewed in this perspective, it should not be
necessary to make an application of LTA along with the application for
“connectivity”.

12. The CTU has submitted that two categories of Long-term Access
may be created; one with firmed-up beneficiaries and another without
firmed-up beneficiaries and that this would do away with the requirement
of firming up the beneficiaries for the 50% of the capacity before or after
the submission of connectivity/LTA applications. According to CTU, there is
no clarity as to what should be done in case after grant of LTA, the

Page 6 of 14
generator is unable to tie up at least 50% of LTA capacity in long-term
PPAs.

13. CTU has submitted that the long-term purchase of power through
competitive bidding route is going rather slow. Further, merchant power
gaining wider acceptance amongst developers as well as utilities, it is
quite likely that firming up of beneficiaries may not actually happen in
near future.

14. In our view this may not be required at this stage. As per the
information available till date around 42605 MW of capacity has already
been tied up through competitive bidding under case 1 and case 2 as per
the details given below:
(In MW)
Case-1 Case-2 UMPP (Case-2) Total

16265 10340 16000 42605

15. The bifurcation of capacity under State Sector under Case-1 &
Case-2 is as follows:

State Capacity under Capacity Under

Case-1 Case-2

CH 1320

GJ 6800

HY 1724 1320

MH 4900

MP 1841

PU 3300

RJ 1000

UP 4400

Total 16265 10340

Page 7 of 14
16. It is apparent from the above that the States are gradually shifting
their focus on generation capacity augmentation with a view to meeting
future demand.

17. Further, the CTU is taking regulatory approval for creating

transmission corridors and Commission has already granted permission to
construct about nine such transmission corridors and this practice may
continue in future also. This adequately takes care of the concern of the
CTU or transmission licensee about the recovery of its transmission charges.

18. Therefore, there does not appear to be an immediate need of

changing of provision relating to signing of PPA for the 50% capacity as
the necessary condition for the construction of transmission lines by
CTU/Transmission licensees.

19. In the matter of removal of difficulties for giving effect to certain

provisions of the Central Electricity Regulatory Commission (Sharing of
Inter- State Transmission Charges and Losses) Regulations, 2010 ,
Commission in its order dated 4.4.2011 has observed as follows:

“The MTOA and STOA shall be offset against the long-term access granted
without identified beneficiaries to the same region only and not against
LTA granted to any other region. The traders who have a portfolio of
generators in a state, for which LTA was obtained to a target region, shall
not be allowed to use this facility to prevent corridor blocking through
LTA.”

20. In view of above, the third proviso to clause (1) of Regulation 12 is

proposed to be substituted as under:
“Provided also that the construction of such augmentation of the
transmission system may be taken up by the CTU or the transmission
licensee in phases corresponding to the capacity which is likely to be

Page 8 of 14
 commissioned in a given time frame after ensuring that the generating
company has released the advance for the main plant packages i.e.
Turbine island and steam generator island or the EPC contract in case of
thermal generating station and major civil work packages or the EPC
contract in case of hydro generating stations for the corresponding
capacity of the phase or the phases subject to a minimum of 10% of the
sum of the such contract values:

Provided also that if the long-term customer has not identified the
buyer for the capacity in full or in part under long-term access and sells
such power under short-term or medium term open access, then the short
term or medium term transmission charges paid or payable for the period
of such short-term or medium-term open access for the given capacity
shall be offset against the transmission charges for the Long Term access
granted without identified beneficiaries, only if such short-term or medium-
term open access is taken to the same region:

Provided also that the electricity traders, who have a portfolio of

generators in a State for which Long Term Access has been obtained to a
target region, shall not be allowed to offset charges for short-term or
medium-term open access against the transmission charges for the long
term access obtained without identified beneficiaries:

Provided also that the exact source of supply or destination of off-

take, as the case may be, shall have to be firmed up and accordingly
notified to the nodal agency:

Provided also that the Central Transmission Utility shall be required to

construct the last leg of transmission line in the destination region in such
time period as estimated by Central Transmission Utility for augmentation
of such line segment subject to a maximum of 3 years from the date of
notifying by the long-term customer.”

21. But with regard to construction of dedicated lines for the generator
by CTU as per Regulation 8, CTU’s main concern is regarding recovery of
cost of investment on the dedicated line in case generation gets unduly
delayed or does not come up. It appears to be genuine concern and it

Page 9 of 14
may be difficult for the Regulatory Commissions also to burden the other
constituents with such stranded cost. At the same time, the generation
should not be frustrated unduly as discussed above for want of
connectivity or for want of dedicated line. The concerns of the CTU would
get addressed adequately once they take construction of dedicated lines
after the generator has released the advance to the main plant
packages and construction contracts as the CTU should draw sufficient
comfort that generator would not release the advance unless it is sure of
completing the project. However, the CTU and the transmission licensees
are expected to complete the ground work of coordinated planning, the
substation in which dedicated line is to be terminated, designing of
substation or the additional bay etc and be ready with the construction in
the shortest possible timeline.

22. Accordingly, following two provisos are proposed to be inserted

after the proviso to clause 8 of Regulation 8of Connectivity Regulations:

“Provided further that the construction of such dedicated transmission line

may be taken up by the CTU or the transmission licensee in phases
corresponding to the capacity which is likely to be commissioned in a given
time frame after ensuring that the generating company has released the
advance for the main plant packages i.e. Turbine island and steam generator
island or the EPC contract in case of thermal generating station and major civil
work packages or the EPC contract in case of hydro generating stations for
the corresponding capacity of the phase or the phases subject to a minimum
of 10% of the sum of the such contract values:

Provided also that the transmission charges for such dedicated transmission
line shall be payable by the generator even if the project gets delayed or is
abandoned.”

23. As regards the issue of assigning responsibility of implementation of

connectivity lines by IPPs, if required earlier than CERC timelines, the
Commission is not in agreement with CTU that IPP is in a better position to

Page 10 of 14
do the lines much earlier than the CTU. With the expertise available with
the CTU, it is in a much better position to do the transmission project as
compared to the IPPs. If it is not possible for the CTU to do the line to meet
the COD of the station then it should try to make arrangement for
evacuation of power through alternate mode till such time the proposed
dedicated line is constructed by CTU. Further it is not clear as to how many
stations are having such problem and in the absence of relevant data,
there is no need to make provision in the regulations for construction of
transmission lines by IPPS.

24. The Clause (6) of Regulation 8 of CERC (Grant of Connectivity, Long-

Term Access and Medium-Term Open Access in Inter-State Transmission
and related matters] Regulations 2009 provides that the mere grant of
connectivity to the grid shall not entitle any entity to interchange power
with the grid. The Regulation reads as follows:

“The grant of connectivity shall not entitle an applicant to interchange any

power with the grid unless it obtains long-term access, medium-term open
access or short-term open access.”

25. Clause (7) of the Regulation 8 carves out an exception to clause (6)
by providing for injection of power by the generator as infirm power
before commercial operation of the generating station even without
having any access . The said clause reads as under:

“A generating station, including captive generating plant which

has been granted connectivity to the grid shall be allowed to undertake
testing including full load testing by injecting its infirm power into the grid
before being put into commercial operation, even before availing any
type of open access, after obtaining permission of the concerned
Regional Load Despatch Centre, which shall keep grid security in view
while granting such permission. This infirm power from a generating station

Page 11 of 14
 or a unit thereof, other than those based on non-conventional energy
sources, the tariff of which is determined by the Commission, will be
governed by the Central Electricity Regulatory Commission (Terms and
Conditions of Tariff) Regulations, 2009. The power injected into the grid
from other generating stations as a result of this testing shall also be
charged at UI rates.”

26. It has come to the notice of the Commission that a certain private
generator is injecting power into the grid without declaring the
commercial operation even though the generating station has been
synchronized to the grid for a considerable period of time. This has
happened apparently due to two reasons; firstly there is no provision in the
Connectivity Regulations about the period during which injection of infirm
power by the generator as UI can be allowed. Secondly, there is no built-in
disincentive which would prevent the generator to stop injecting infirm
power into the grid as UI and identify buyers for sale of such infirm power.
Therefore, the generator also is required to be allowed to inject infirm
power during testing before COD of units of a generating station after
finding buyers for the same as far as possible. However, if the generators
are unable to do so, the infirm power generated during testing before
COD of units of the generating station may be allowed to be injected as
UI but charged at UI rates subject to the ceiling rates which should be
near to their variable cost which would encourage the generators to
declare their COD at an early date. As a number of merchant power
plants getting connected to the grid is likely to rise in future, there is a
requirement for clarity on the issue. Accordingly, it has been proposed to
substitute clause (7) of Regulation 8 of Connectivity Regulations as under:

“(7) (i) Notwithstanding anything contained in clause (6) of this regulation, a

generating station, including a captive generating plant which has been
granted connectivity to the grid shall be allowed to inject infirm power into the
grid during testing including full load testing before its COD for a period not

Page 12 of 14
exceeding three months after obtaining prior permission of the concerned
Regional Load Despatch Centre:

Provided that the concerned Regional Load Despatch Centre while granting
such permission shall keep the grid security in view and ensure that injection
of such infirm power is only for the purpose of testing, prior to COD of the
generating station or a unit thereof;

(ii) Infirm power from a generating station or a unit thereof, other than those
based on non-conventional energy sources, the tariff of which is determined
by the Commission, shall be governed by the provisions of Central Electricity
Regulatory Commission (Terms and Conditions of Tariff) Regulations, 2009 as
amended from time to time or subsequent amendment thereof;

(iii) In respect of a generating station or unit thereof, whose tariff is not

determined by the Commission, the generator may identify buyers for sale of
infirm power during the period of testing prior to COD of the unit or the
generating station as the case may be, and such infirm power shall be
scheduled by the concerned Regional Load Despatch Centre subject to
transmission constraints, if any. The price for such sale of infirm power to the
identified buyers shall be as mutually agreed between the generator and
identified buyer(s):

Provided that where infirm power is injected into the grid during the testing
prior to COD of a generating station or unit thereof for which no buyer has
been identified, the generator shall be paid at UI rates for such infirm power
subject to the ceiling of the following rates corresponding to the fuel used for
the generation:

Domestic coal
(Rs. / kWh sent out) : 1.65

APM gas as fuel

(Rs. / kWh sent out) : 2.60

Imported Coal/RLNG
(Rs. / kWh sent out) : 3.30

Liquid Fuel
(Rs. / kWh sent out) : 9.00

Page 13 of 14
 Provided further that in case imported coal is being blended with domestic

coal, then the ceiling rate of infirm power shall be arrived at in proportion to the

ratio of blending based on the above rates of domestic and imported coal

and shall be subject to a further ceiling of Rs. 1.90 / kWh ex-bus:

Provided also that in case the generating station uses natural gas
supplied under Administrative Price Mechanism (APM), Re-gassified Liquid
Natural Gas (RLNG) and Liquid fuel in combination for power generation, then
the rate of infirm power shall be arrived at in proportion to the ratio of fuel
consumption based on the rates specified above.”

27. Any short fall in recovery of fuel cost could be factored in the tariff
by the merchant power generator for the firm power supply as and when
starts.

Page 14 of 14