It is a regulation that has the potential to change the face of the power industry in the country.
But the power industry feels that the recently passed Electricity Act 2003 has also created a potential problem: arming the state electricity regulatory commissions with over-arching powers.
Sector players voiced this concern at a seminar on "Electricity Act 2003: Opportunities & challenges and revival of the Dabhol power project" organised by the Indian Merchants' Chamber, in Mumbai on Saturday.
"The merit order despatch favoured by these commissions is a cause for concern. Independent power producers make huge investments in power projects, which become viable at a plant load factor of about 75 per cent. How can they sell power cheap? Consequently, up to a PLF of 60 per cent, the merit order formula should not be followed. It should be applicable only between 60-75 per cent of PLF," P K Kukde, executive director, Tata Power Company, said.
Under the merit order despatch formula, regulators advocate that the state electricity boards buy power based on an ascending order - the cheapest power first.
It's this ruling of the Maharashtra Electricity Regulatory Commission that was partly responsible for the Dabhol crisis, Maharashtra State Electricity Board officials have maintained.
Due to the high cost of Dabhol power, the MSEB could not buy it leading to a spat with Dabhol.
A K Doda, executive director of the Industrial Development Bank of India threw his weight behind Kukde. "IPP will always have higher costs," he says.
Maharashtra energy secretary Jayant Kawale had a different set of concerns. He said the wrong kind of persons could be selected for various positions in these regulatory commissions.
"This can happen with the best of intentions and lead to problems. It is important that the right people come in. Yes, the Act has made provision for funding the regulators. The question now is whether they can rise to the challenge," he said.
One man who appears unruffled by the Electricity Act 2003 is MSEB chairman A Basak.
He questions the conventional wisdom that open access would prove to be a threat to MSEB.
"Yes, we will have to restructure under the Act. However, remember that we produce some of the cheapest power in the country. Our cost of generation is about Rs1.25 per unit, transmission cost about 24 paise per unit and distribution cost 65 paise per unit. The result is, we can sell power at Rs 2 per unit. Also, we have huge starting advantage. My concerns are different. Five years down the line, Maharashtra may become a power surplus state from a deficit state at present. Are we then allowed to participate in power trading under the Electricity Act, 2003?"
Clearly, the last word has not been heard on the most ambitious legislation to reform the power sector yet.
