Tariff based Competitive-bidding Guidelines for Transmission Service

[Tariff based Competitive-bidding Guidelines for Transmission Service][1]

[17th April, 2006]

1. Preamble.

Promotion of competition in the electricity industry in India is one of the key objectives of the Electricity Act, 2003 (the Act). Development of a transmission system is essential both for encouraging competition and for creating electricity markets. These guidelines are aimed at facilitating competition in this sector through wider participation in providing transmission services and tariff determination through a process of tariff based bidding.

Section 61 and 62 of the Act provide for tariff regulation and determination of tariff of generation, transmission, wheeling and retail sale of electricity by the Appropriate Commission. Section 63 of the Act states that —

“Notwithstanding anything contained in section 62, the Appropriate Commission shall adopt the tariff if such tariff has been determined through transparent process of bidding in accordance with the guidelines issued by the Central Government.”

[2][Tariff based Competitive Bidding Guidelines for Transmission Service and Guidelines of Encouraging Competition in Development of Transmission Projects] have been framed under the above provisions of section 63 of the Act. The specific objectives of these guidelines are as follows:

Promote competitive procurement of transmission services.

Encourage private investment in transmission lines.

Facilitate transparency and fairness in procurement processes;

Facilitate reduction of information asymmetries for various bidders;

Protect consumer interests by facilitating competitive conditions in procurement of transmission services of electricity;

Enhance standardization and reduce ambiguity and hence time for materialization of projects;

Ensure compliance with standards, norms and codes for transmission lines while allowing flexibility in operation to the transmission service providers.

2. Scope of the Guidelines

(1)     These guidelines are being issued under the provisions of Section 63 of the Electricity Act, 2003 for procurement of transmission services for transmission of electricity.

(2)     The guidelines shall apply for procurement of transmission services for transmission of electricity through tariff based competitive bidding, through the mechanisms described in this notification and to select transmission service provider for a new transmission line and to build, own, maintain and operate the specified transmission system elements.

(3)     “Transmission line” has been defined in para 2(72) of the Electricity Act, 2003 as all high pressure cables and overhead lines (not being an essential part of the distribution system of a licensee) transmitting electricity from a generating station to another generating station or a substation, together with any step up and step down transformers, switch gear and other works necessary to and used for the control of such cables or overhead lines, and such buildings or part thereof as may be required to accommodate such transformers, switch gear and other works.

(4)     Procurement of transmission services would include all activities related to survey, detailed project report formulation, arranging finance, project management, obtaining transmission license, obtaining right of way, necessary clearances, site identification, land compensation, design, engineering, equipment, material, construction, erection, testing and commissioning, maintenance and operation of transmission lines and/or substations and/or switching stations and/or HVDC links including terminal stations and HVDC transmission line. It will be in such a manner that the required transmission services as specified in the bid document are provided by execution of the project up to completion and commissioning and its subsequent maintenance and operation so that the facilities are available as per the target availability for recovery of full transmission charges fixed by the appropriate commission. For availability of transmission line below the target, subject to para 2.5 below, transmission tariff payable to the TSP will be in accordance with the appropriate regulation of the appropriate commission.

(5)     If the availability of the transmission line is below the norms prescribed by the CERC for six consecutive months the procurer of transmission service or the billing and accounting agency or the operator of the transmission system may seek revocation of transmission license as per the procedure laid down under the Electricity Act, 2003 and in accordance with rule 5 of Electricity Rules, 2005.

3. Bid Process Coordinator (BPC)

(1)     The Bid Process Coordinator, herein after referred to as BPC, would be responsible for coordinating the bid process for procurement of required transmission services [3][for each inter-State Transmission Project to be implemented under tariff-based competitive bidding in accordance with these guidelines].

(2)     For procurement of transmission services, required for [4][any] inter-state transmission [5][project], the Central Government shall notify any Central Government Organization/Central Public Sector Undertaking [6][or its wholly owned subsidiary (Special Purpose Vehicle)] to be the BPC. The BPC will be notified by the Ministry of Power and nomination of BPC will be for a period of three years at a time. It will be open for Ministry of Power to review the nomination of BPC at any time. For immediate implementation of these guidelines the Empowered Committee constituted as per the provisions of the “Guidelines for encouraging competition in development of Transmission Projects” will be the BPC till any other organization is nominated as BPC by the Ministry of Power.

(3)     For procurement of transmission services required for intra-state transmission, the appropriate State Government may notify any Organization/State Public Sector Undertaking especially engaged for this purpose by the appropriate state government or BPC notified by the Central Government to be the BPC for the state.

(4)     All the expenditure incurred by the BPC in the process of selection of the investor in accordance with the provisions of these guidelines shall be recovered from the developer who is finally identified and assigned the task of developing that project. The amount to be recovered shall be indicated in the RFP document so that bidders can take that amount into consideration in the tariff to be quoted by them.

4. Preparation for inviting bids

(1)     The BPC shall prepare the bid documentation in accordance with these guidelines and obtain approval of the Appropriate Commission. Alternatively, the BPC can use the standard bidding documents notified by Ministry of Power. Standard Bid Documents in accordance with these guidelines will be notified by Ministry of Power within three months of the notification of these guidelines. Approval of the Appropriate Commission would be necessary if any material deviation is proposed to be made from the Standard Bid Documents.

(2)     Intimation shall be sent by the BPC to the appropriate Commission about initiation of the bidding process.

(3)     For location specific substations, switching stations or HVDC terminal or inverter stations the BPC or its authorized representative should [7][initiate the process of acquisition of land]. The BPC or its authorized representative will also [8][initiate the process of seeking forest clearance, if required].

5. Transmission Service Provider (TSP)

(1)     [9][The successful bidder shall be designated as the Transmission Service Provider (TSP), herein after referred to as the TSP, after executing the TSA and acquiring the SPV. The TSP shall seek transmission license from the appropriate Regulatory Commission, if it is not a deemed licensee. The TSA shall be effective from the date of grant of license from the appropriate Regulatory Commission.]

(2)     The TSP would take-up execution of the transmission scheme, [10][project] so as to complete commission and operationalise the transmission line as per the specified schedule in the [11][TSA].

6. Recovery of Transmission Charges

(1)     Total charges for transmission of electricity by use of the transmission services provided by the TSP(s) selected through the bidding process as per these guidelines, payable to the TSP, shall be determined as specified in paras 7.1, 7.2, 7.3, 7.4 and 7.5 of these guidelines.

(2)     Recovery of transmission charges from the users of the transmission services such as State supply utilities, distribution companies, generation companies, traders, bulk consumers, etc., shall be done as provided in the “ Guidelines for encouraging competition in development of transmission Projects”

7. Transmission Charge Structure

(1)     For procurement of transmission services under these guidelines, transmission charges shall be paid and settled for each payment period (not exceeding one month). A transmission charge for providing transmission service and operation and maintenance required for the various transmission elements shall form the basis for bidding and evaluation. Tariff structure will have two components — one scaleable and the other non-scaleable. The scaleable component shall not be more than 15% of the non-scaleable component.

(2)     The BPC shall specify scheduled month of commercial operationalisation for the transmission line required for the transmission service and invite bids for the transmission charge.

(3)     [12][At the bid evaluation stage, ratio of minimum and maximum transmission charge (including both the non-scaleable component and the scaleable component incorporating escalation as per index being used for the purpose of evaluation) over the term of the license shall not be less than 0.7 to avoid excessive front loading or back loading during the period of contract.]

(4)     The bidders shall quote annual tariff payable after commissioning till expiry of license period and the monthly tariff payable shall be annual tariff divided by 12.

(5)     Tariff shall be designated in Indian Rupees only. Foreign exchange risks, if any, shall be borne by the provider of transmission service.

(6)     Reasonableness of Transmission Charges.—Criteria to assess the reasonableness of transmission charges quoted by any bidder will be stated in the bid documents. BPC will assess the reasonableness of transmission charges. No bid will be accepted by the BPC if it finds after evaluation that none of the quoted transmission charges are reasonable. But this process of assessing the reasonableness will not limit the rights of the BPC to reject any or all the bids under any other provision of RFQ or RFP or combined bid.

8. Payment Security Mechanism

(1)     Adequate payment security shall be made available to the TSP by the user of transmission services being provided by the TSP. The payment security may constitute:

(i)       Letter of Credit (LC).

(ii)      Letter of Credit (LC) backed by credible escrow mechanism.

9. Bidding Process

(1)     For the procurement of transmission services under these guidelines, BPC may at its option either adopt a two-stage process featuring separate Request for Qualification (RFQ) and Request for Proposal (RFP) or adopt a single stage two envelope tender process combining the RFP and RFQ processes. The bid documents shall be prepared in accordance with para 4.1 of these guidelines.

(2)     RFQ or combined RFQ and RFP notice should be published in at least two national newspapers, website of the BPC and the appropriate Government and preferably in trade magazines also, so as to accord it wide publicity. The bidding shall necessarily be by way of International Competitive Bidding (ICB). For the purpose of issue of RFQ minimum conditions to be met by the bidder shall be specified in the RFQ notice.

(3)     BPC shall provide only written interpretation of the tender document to any bidder/participant and the same shall be made available to all other bidders. All parties shall rely solely on written communication and acceptances from the bidders.

(4)     Standard documentation to be provided in the RFQ shall include,

(5)     [13][Definition of requirements, including:

Brief description of the Project;

Commissioning milestones to be achieved by the bidders;

Qualification requirements to be met by bidders including, minimum net-worth, internal resource generation, etc with necessary proof of the same, as outlined in the bid documents;]

(6)     [14][The conditions as specified by the Appropriate Commission to be complied with by a person for being eligible to obtain a transmission license shall be necessary conditions for RFQ and will be incorporated in the RFQ by BPC.]

(7)     [15][* * *]

(8)     [16][* * *]

(9)     [17][* * *]

(10)   [18][* * *]

(11)   RFP shall be issued to all bidders who have qualified at the [19][RFP] stage. BPC may call a pre bid conference with all the developers who have sought documents for RFQ. In case the bidders seek any deviations and BPC finds [20][those] deviations are reasonable, the BPC may agree to deviation. The clarification/revised-bidding document shall be given to all who had sought the [21][RFP] document informing about the deviations and clarifications. Wherever revised bidding documents are issued, the BPC shall provide bidders at least [22][one month] after issue of such documents for submission of bids.

(12)   Standard documentation to be provided by the BPC in the RFP shall include,

(13)   Specified target dates/months for commissioning and commercial operations and start of providing the transmission services.

(14)   [23][Proposed Transmission Service Agreement(TSA).—The TSP will enter into a Transmission Service Agreement (TSA) with the concerned utilities. These may include the utilities falling in the region where the load is located, any intervening region and the interregional transmission lines between the regions.

The bid document for the concerned project shall provide a draft of proposed TSA.]

(15)   [24][Required Period of validity of offer of bidder.]

(16)   [25][TSA proposed to be entered with the selected bidder. The TSA proposed in the RFP stage may be amended based on the inputs received from bidders during the pre bid conference and it will be made available to all RFP bidders. No further amendments shall be carried out in the TSA.]

(17)   [26][Bid evaluation methodology to be adopted by the BPC. The bids shall be evaluated based on annual transmission charges for all components covered under the package as quoted by the bidder.]

(18)   [27][The RFP shall also specify the Discount Factor (DF) that would be used for evaluation of bids.]

(19)   [28][The RFP will also specify the bid bond as well as the Contract Performance Guarantee that the bidders will have to furnish.]

(20)   [29][The proposed indemnification agreement between the TSP and the utilities will also be provided along with the RFP. This indemnification will be applicable to both the TSP and the utilities from the zero date as specified in the RFP.]

(21)   [30][The RFP shall also specify the liquidated damages that would apply in event of delay in start of providing the transmission services.]

(22)   [31][Other technical, operational and safety criteria to be met by bidder/TSP, including the provisions of the technical standard specified by CEA, IEGC/State Grid Code, relevant orders of the Appropriate Commission, etc., as applicable.]

(23)   Bid submission and evaluation.—To ensure competitiveness, the minimum number of qualified bidders will be two.

(24)   [32][Bid evaluation committee.—The Empowered Committee shall constitute a committee for evaluation of the bids with at least one representative from CEA and not less than two representatives from the concerned Regional Power Committees with at least one representative from every concerned RPC and one independent member. The independent member shall have expertise in financial matter/bid evaluation.]

(25)   The bids shall be opened in public and representatives of bidders shall be allowed to remain present.

(26)   The technical bids shall be [33][examined] to ensure that the bids submitted meet minimum eligibility criteria set out in the [34][bid] documents on all technical evaluation parameters. Only the bids that meet all elements of the minimum technical criteria set out in the RFQ shall be considered for further evaluation on the transmission charges bids.

(27)   The transmission charge bid shall be rejected if it contains any deviation from the [35][bid documents] for submission of the same.

(28)   The bidder who has quoted lowest [36][levelised] transmission charge as per evaluation procedure shall be considered for the award.

10. Arbitration

Regulatory Commission under the provisions of the Electricity Act, 2003.

11. Time Table for Bid Process

(1)     [37][A suggested time-table for the bid process is indicated below. The BPC may give extended time-frame indicated herein based on the prevailing circumstances and such alterations shall not be construed to be deviation from these guidelines.

(2)     A suggested time-table for the Single stage two envelope bid process is indicated below. The procurer may give extended time-frame indicated herein based on the prevailing circumstances and such alterations shall not be construed to be deviation from these guidelines.

12. Contract award and conclusion

(1)     [38][After selection and issue of LOI from the BPC, the selected bidder shall acquire the SPV created for the Project to become TSP and sign the TSA, if not already signed by the SPV, in accordance with the terms and conditions as finalized in the bid document. The TSA will be effective only upon grant of transmission license from the Appropriate Commission.]

(2)     [39][The TSP shall make an application for grant of transmission license to the Appropriate Commission within [40][ten days] of issuance of LOI or signing of TSA, whichever is later.]

(3)     [41][The BPC shall make the final result of evaluation of all bids public.]

(4)     [42][The TSA along with the certification by the Empowered Committee shall be forwarded to the Appropriate Commission for adoption of tariffs in terms of Section 63 of the Act.]

(Gireesh B. Pradhan)

Joint Secretary to the Government of India

No. 23/23/05-R&R (Col. II)

Government of India

Ministry of Power

(R&R Cell)

Dated: 6th August, 2007

To,

The CMD, PTC India Ltd.

2nd Floor, NBCC Tower

15, Bhikaji Cama Place

New Delhi — 110 006

Subject: Regarding provisions of the Electricity Act, 2003

Sir,

I am directed to refer to your letter dated 7th May, 2007 on the above subject and to convey that:

(i)       Section 9(2) of the Electricity Act, 2003 given the right to open access to a person who has constructed a captive generating plant and maintains and operates such a plant (as defined under Electricity Act, 2003 and the Rules made hereunder), for the purposes of carrying electricity from the captive generating plant to the destination of his use, subject to availability of adequate transmission facility. This provision is distinct from the open access which is to be introduced in phases by the State Electricity Regulatory Commissions (SERCs) under Section 42 for the consumers other than captive users on payment of cross subsidy surcharge, if any Therefore, the right to open access for captive generating plants flows from Section 9(2) and not from Section 42(2) and hence is no dependent upon introduction of open access by SERCs under Section 42 of the Act.

(ii)      However, supply of surplus power from a captive generating plant to non captive consumers will be covered by the provisions of Section 42 of the Act.

Yours faithfully

Director

No. V-1/2007-IPC(Pt.)

Government of India

Ministry of Power

New Delhi, dated 9th August, 2007

To,

Principal Secretary (Energy)

All States and Union Territories

Subject: Signing of State Support Agreement/MOU for facilitating setting up of Power Plants including those using imported coal.

Sir,

(1)     I am directed to state that numerous enquiries have been received on the requests by entrepreneurs for signing State Support Agreement/MOU with States for facilitating setting up power stations including those to be set up on imported coal.

(2)     Section 7 of the Electricity Act, 2003 provides that a generating station may be established, operated and maintained without obtaining a license under the Act. The States could assist the developers through MOUs for securing land, obtaining the requisite environment and other clearances and in achieving financial closure.

(3)     These projects could thereafter tie up sale of power in accordance with the provisions of the Electricity Act, 2003 and the Tariff Policy, 2006:

(a)      under provisions of Section 63 of the Electricity Act, 2003 i.e. by responding to tariff based bids from the distribution companies, or

(b)      making use of open access for transmission and operate as merchant power plants selling their power:

(i)       directly to a consumer (u/s. 49 of the Act) or to a distribution licensee for short term sales [under proviso to Section 62(1)(a) of the Act], or

(ii)      to an electricity trader u/s 10 of the Act.

(c)      functioning as a captive/group captive power plant wheeling surplus power to open access consumers (u/s. 49) or a distribution company in short term [under proviso to Section 62(1)], making use of ‘open access in transmission’. Surplus power will be determined as per the Electricity Rules, 2005.

(4)     The power plant can also operate as a captive power plant, and the power can be consumed by the owners in terms of the provisions of the Electricity Act, 2003 and the Electricity Rules, 2005.