Power Reforms Journey (3): A revolution at the National Capital

Even as much debate was happening in the states on privatization and regulation, transformational change was in progress on the national scene. The Central Electricity Regulatory Commission (CERC) was formed in 1998 consequent to the ERC Act, 1998. Under the firm hand and watchful eye of Prof. S L Rao, the founding Chairman of CERC, governance of central power utilities and inter-state power flows was coming to age.

Prof. Rao, prior to his appointment as Chairman CERC, was the Director General of the National Council of Applied Economic Research (NCAER). A wildcard for the position, he had little exposure to energy matters in his earlier roles in the private sector and in research institutions. It was his innate ability to make institutions work that won him the day at CERC. Quick to understand the key issues that he had to deal with, Prof. Rao also set the operating rules for his nascent institution vis-à-vis the political executive and the bureaucracy. He set forth a culture of independence and objectivity that largely survives at CERC to this date, despite persistent challenges.

One of the first mega issues that Prof. Rao had to deal with was on the wild frequency variations in the power system due to rampant indiscipline by generators and utilities. Especially the latter were responsible for overdrawing beyond their entitlements at will, causing frequency to drop precipitously. I recall a time at the State Load Despatch Centre in Hyderabad where the frequency having dropped to 47.7 Hz (as against the nominal 50 Hz) was sufficient to attract only a mild verbal reprimand for the shift engineer from his Chief Engineer for not limiting the over-drawal by the State by 220 kV opening lines.  At those frequencies the Grid could have collapsed at any time, and it was indeed a miracle that it did not break down more frequently than it actually did. The crude management mechanisms (opening Extra High Voltage circuits) was also neither safe nor desirable since such practices indiscriminately plunge entire swathes of areas into darkness.  It was manifest poor management, but there was no incentive to do better or penalty for doing badly.

Prof. Rao quickly put into action a proposal that he had inherited. In 1994, the concept of Unscheduled Interchange (UI) had been proposed by ECC a consulting organization for better management of the power flows in the Indian grid. Prof. Rao pursued the implementation of a 3 part tariff Availability Based Tariff (ABT) mechanism. The first two comprising Fixed Charges, Variable Charges were already in place for central thermal power generators based on the KP Rao formula. The addition was a frequency linked charge for deviations from schedules that the generators and the state utilities had to declare in advance. The frequency linked charges were proposed to operate under the broad construct of high charges for excess drawal by utilities when frequency was low, and low charges when frequency was close to nominal values. At its extremity, at 50.5 Hz the charges dropped to zero, essentially discouraging generators to generate in excess of schedules when the grid was already oversupplied, while utilities were encouraged to draw more power cheaply, thus reducing the oversupply (and hence the frequency). It set the first seeds of real time power trade, albeit in a rather convoluted manner.

Hell broke loose in the consultations and hearings. Engineers and purists were aghast at frequency (a purely technical characteristic of the power system) being used as a basis for seemingly commercial purposes. Through the ensuing debate and lawsuits, CERC under Prof. Rao and subsequently Mr. Bhanu Bhushan (then at Powergrid and subsequently Member of CERC) stuck to course. That ended up transforming the way the grid was managed. Eventually, through the years frequency in the Indian power sector no longer sees the wild excursions and typically operate at very acceptable levels, if not fully at par with international standards (as I write this, the frequency of the Indian grid is 50.06 Hz). The narrowing of the frequency band eventually set the stage for the five Indian regional grids to be integrated to operate as one of the largest synchronous (frequency integrated) grids in the world.

All this came to happen between the years 2000 and 2002 when the ABT order embodying the UI mechanism charted course through the challenges and came into full force. The year 2002 was also a watershed for me. Andersen, the organization I had come to love and belong went under due to the Enron saga and the consequent US Department of Justice indictment (since overturned, but to little avail). It was an immense loss, but a personal consequence was my move from state level to the national scene where the Electricity Act, 2003 was brewing. (to continue)