core sector communique

Government Notifies Guidelines for Short Term Procurement of Electricity by Discoms

The Government has notified guidelines for short-term (i.e. for a period of less than or equal to one year) procurement of electricity by Distribution Licensees under section 63 of the Electricity Act, 2003. The new guidelines will promote competitive procurement of short-term power requirement by the Distribution Licensees and are also expected to reduce the overall cost of procurement of power leading to significant benefits for consumers. The specific objectives of these Guidelines are as follows: (i) Promote competitive procurement of electricity by Distribution Licensees for their short term demand (less than or equal to one year); (ii) Reduce the Power Purchase Bill of Discoms through a process of planned procurement based on transparent guidelines; (iii) Provide benefit to consumers; (iv) Facilitate transparency and fairness in procurement processes. A few exceptions have also been made under the new guidelines which have been finalised after consultation with all stakeholders. Procurement of Power for less than 15 days shall be excluded from the scope of these Guidelines to allow for contingencies. Power procured under Banking Mechanism and from Power Exchanges shall also be excluded from the scope of these Guidelines. The need for guidelines for short term procurement of electricity was felt as Distribution Companies (DISCOMs) engage in purchase or sale of electricity in the short-term market to meet their demand for electricity for shorter duration not exceeding one year. Power purchase cost constitutes the largest cost component for Distribution Licensees reflecting in the retail consumer tariff. Since short-term procurement of electricity was being done by the DISCOMs in large scale to meet the urgent short term requirement it was decided to issue the guidelines for short term procurement of power by Distribution Licensees through competitive bidding process. Earlier, the Ministry of Power, Government of India under the provisions of Section 63 of the Electricity Act, 2003, had notified guidelines for determination of tariff by bidding process for Procurement of Power by Distribution Licensees on 19.1.2005 which were amended from time to time. These guidelines covered the long term (more than 7 years) and medium term procurement (upto 7 years but exceeding 1 year) and are available on the Ministry of Power website. It is provided in these guidelines that "As and when considered appropriate, the Central Government would issue the guidelines for procurement of electricity for a period of less than one (1) year under the provisions of Section 63 of the Electricity Act. These guidelines would be applicable to the electricity to be procured outside the long-term PPA as stipulated, from time to time, in the National Electricity Policy and Tariff Policy." …