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What my friends in India (college educated, urban) guessed about America when I asked them these questions:
1. Almost all of them wrongly guessed MLB/Baseball is the most popular American sport. Most thought basketball/NBA was #2 and football/NFL (called incorrectly Rugby in India) was #3. (Actual rank: NFL > NBA > MLB)
2. When I asked them to guess the demographics of the US, they were in this range: Whites 70-80%, Blacks 25-50%, 5% rest. All of them overestimated the number of Indians in the US. All of them there were shocked to hear that there are more Hispanics than Blacks. (Actual distribution: 61% non-Hispanic Whites, 12% Blacks, 17% Hispanics incl. White Hispanics, 5% Asians)
3. Most of them thought the population of America was 500-700M. One friend thought it was 100M.
4. I told them that the actual population of America is only 330M. I asked them to guess the number of illegal immigrants. All of them underestimated the number. The highest number I heard was 5M. (It is 12-15M or higher)
5. All of them underestimated the divorce rate at 30-40%. That black single-parent rate was >75% was a shocker to them. All of them wrongly guessed higher SES Americans have a higher divorce rate than lower SES Americans. Possibly because celebrities have a high divorce rate.
6. That state capitals are not the biggest cities of their respective states was surprising to them. I asked them to guess the capital of NY and CA; they guessed NYC and LA.
7. None of them guessed correctly that there is a quota system for African Americans (and Hispanics) in colleges in America. All of them said no.
8. All of them guessed the most popular meat wrongly as beef. Some guessed pork (just called pig meat in India, very rare in India). It’s chicken.
9. All of them underestimated how much I make when I told them the median income in America is ~$60K.
INDIA IPPON DESU
Tuesday, August 30, 2022
Changes in Electricity Distribution
The Electricity (Amendment) Bill, 2022 was introduced in Lok Sabha on August 8, 2022. The Bill amends the Electricity Act, 2003. The Act regulates the electricity sector in India. It sets up the Central and State Electricity Regulatory Commissions (CERC and SERCs) to regulate inter-state and intra-state matters, respectively.
Key provisions under the Bill are:
Multiple discoms in the same area: The Act provides for multiple distribution licensees (discoms) to operate in the same area of supply. The Act requires discoms to distribute electricity through their own network. The Bill removes this requirement. It adds that a discom must provide non-discriminatory open access to its network to all other discoms operating in the same area, on payment of certain charges. The central government may prescribe the criteria for determining the area of supply.
Power procurement and tariff:
Upon grant of multiple licenses for the same area, the power and associated costs as per the existing power purchase agreements (PPAs) of the existing discoms will be shared between all discoms.
To meet any additional power requirements, a discom may enter into additional PPAs after meeting the obligations of existing agreements. Such additional power need not be shared with other discoms. Under the Act, in case of multiple discoms in the same area of supply, the SERC is required to specify the maximum ceiling for tariff. The Bill adds that the SERC will also specify a minimum tariff for such cases.
Cross-subsidy Balancing Fund:
The Bill adds that upon grant of multiple licenses for the same area, the state government will set up a Cross-subsidy Balancing Fund. Cross-subsidy refers to the arrangement of one consumer category subsidising the consumption of another consumer category. Any surplus with a distribution licensee on account of cross-subsidy will be deposited into the fund. The fund will be used to finance deficits in cross-subsidy for other discoms in the same area or any other area.
The Bill specifies that the above matters related to the operation of multiple discoms in the same area will be regulated in accordance with the rules made by the central government under the Act. License for distribution in multiple states: As per the Bill, the CERC will grant licenses for distribution of electricity in more than one state.
Payment security:
The Bill provides that electricity will not be scheduled or despatched if adequate payment security is not provided by the discom. The central government may prescribe rules regarding payment security.
Contract enforcement:
The Bill empowers the CERC and SERCs to adjudicate disputes related to the performance of contracts. These refer to contracts related to the sale, purchase, or transmission of electricity. Further, the Commissions will have powers of a Civil Court.
Renewable purchase obligation:
The Act empowers SERCs to specify renewable purchase obligations (RPO) for discoms. RPO refers to the mandate to procure a certain percentage of electricity from renewable sources. The Bill adds that RPO should not be below a minimum percentage prescribed by the central government. Failure to meet RPO will be punishable with a penalty between 25 paise and 50 paise per kilowatt of the shortfall.
Selection committee for SERCs:
Under the Act, the Chairperson of the Central Electricity Authority or the Chairperson of the CERC is one of the members of the selection committee to recommend appointments to the SERCs. Under the Bill, instead of this person, the central government will nominate a member to the selection committee. The nominee should not be below the rank of Additional Secretary to the central government.
Composition of Commissions and APTEL:
The Bill increases the number of members (including the chairperson) in SERCs from three to four. Further, at least one member in both the CERC and SERCs must be from law background. Under the Act, Appellate Tribunal for Electricity (APTEL) consists of a chairperson and three other members. The Bill instead provides that the APTEL will have three or more members, as may be prescribed by the central government.
Key provisions under the Bill are:
Multiple discoms in the same area: The Act provides for multiple distribution licensees (discoms) to operate in the same area of supply. The Act requires discoms to distribute electricity through their own network. The Bill removes this requirement. It adds that a discom must provide non-discriminatory open access to its network to all other discoms operating in the same area, on payment of certain charges. The central government may prescribe the criteria for determining the area of supply.
Power procurement and tariff:
Upon grant of multiple licenses for the same area, the power and associated costs as per the existing power purchase agreements (PPAs) of the existing discoms will be shared between all discoms.
To meet any additional power requirements, a discom may enter into additional PPAs after meeting the obligations of existing agreements. Such additional power need not be shared with other discoms. Under the Act, in case of multiple discoms in the same area of supply, the SERC is required to specify the maximum ceiling for tariff. The Bill adds that the SERC will also specify a minimum tariff for such cases.
Cross-subsidy Balancing Fund:
The Bill adds that upon grant of multiple licenses for the same area, the state government will set up a Cross-subsidy Balancing Fund. Cross-subsidy refers to the arrangement of one consumer category subsidising the consumption of another consumer category. Any surplus with a distribution licensee on account of cross-subsidy will be deposited into the fund. The fund will be used to finance deficits in cross-subsidy for other discoms in the same area or any other area.
The Bill specifies that the above matters related to the operation of multiple discoms in the same area will be regulated in accordance with the rules made by the central government under the Act. License for distribution in multiple states: As per the Bill, the CERC will grant licenses for distribution of electricity in more than one state.
Payment security:
The Bill provides that electricity will not be scheduled or despatched if adequate payment security is not provided by the discom. The central government may prescribe rules regarding payment security.
Contract enforcement:
The Bill empowers the CERC and SERCs to adjudicate disputes related to the performance of contracts. These refer to contracts related to the sale, purchase, or transmission of electricity. Further, the Commissions will have powers of a Civil Court.
Renewable purchase obligation:
The Act empowers SERCs to specify renewable purchase obligations (RPO) for discoms. RPO refers to the mandate to procure a certain percentage of electricity from renewable sources. The Bill adds that RPO should not be below a minimum percentage prescribed by the central government. Failure to meet RPO will be punishable with a penalty between 25 paise and 50 paise per kilowatt of the shortfall.
Selection committee for SERCs:
Under the Act, the Chairperson of the Central Electricity Authority or the Chairperson of the CERC is one of the members of the selection committee to recommend appointments to the SERCs. Under the Bill, instead of this person, the central government will nominate a member to the selection committee. The nominee should not be below the rank of Additional Secretary to the central government.
Composition of Commissions and APTEL:
The Bill increases the number of members (including the chairperson) in SERCs from three to four. Further, at least one member in both the CERC and SERCs must be from law background. Under the Act, Appellate Tribunal for Electricity (APTEL) consists of a chairperson and three other members. The Bill instead provides that the APTEL will have three or more members, as may be prescribed by the central government.
Review of Power Tariff policy
Standing Committee Report Summary
The Standing Committee on Energy (Chair: Mr. Rajiv Ranjan Singh) submitted its report on the ‘Review of Power Tariff Policy-Need for uniformity across the Country’ on August 2, 2022. Key observations and recommendations are:
Tariff rationalisation:
The Committee observed that having a uniform tariff across the country at present or in one go would be very difficult. It noted that cost of supply of electricity varies due to varying generation, transmission, and distribution costs. States have been empowered to decide the tariff for different categories of consumers. Many states have created a large number of tariff categories based on socio-economic considerations (as high as 93). The Committee noted that the current tariff structure is varied and complex, and there is a need to rationalise various key components of power tariff. It recommended the central government to work with states to simplify the tariff structure.
Power Purchase Agreements (PPAs):
Power procurement cost constitutes a major portion of the cost of supply for distribution companies (discoms). About 90% of the power demand is met through long-term bilateral contracts between generators and discoms, known as PPAs. The Committee observed that discoms have signed PPAs at a higher cost as compared to prevailing market prices. This has adverse implications on their financial performance. It recommended rationalising the cost of PPAs. However, it also observed that re-negotiation of PPAs, unless mutually decided by parties, is not desirable as it may send adverse signals for future investment.
Payment of fixed costs:
Discoms pay generators in two parts: (i) fixed charges, reflective of capital investments, and (ii) variable charges, including cost of fuel for generation. The Committee observed that capacity utilisation of coal and lignite-based plants in 2020-21 was about 53%. Discoms have to pay a big amount as fixed cost even when plants are not utilised. This cost has to be ultimately passed on to end consumers. However, fixed cost is not being recovered fully at the distribution tariff level. The Committee recommended the government to explore avenues to reduce this burden on discoms.
Power exchanges:
The Committee noted that power exchanges can help bringing in uniform tariff across the country. However, current power purchased through exchanges is less than 5% of the total electricity generated, as most of the demand is met through long-term PPAs. It recommended the central government to: (i) develop the power exchange system, (ii) ensure availability of multiple exchanges to avoid any monopolies, and (iii) formulate regulations to prevent malpractices.
Cross subsidy:
Cross-subsidy refers to tariff arrangement where one consumer category pays a comparatively higher tariff to subsidise consumption of another consumer category. The Tariff Policy requires that tariffs for all consumer categories be brought within ±20% of the average cost of supply to them. The Committee recommended restriction of cross subsidy within a band. Further, a system may be adopted where the base tariff is the average cost of supply for all categories and ±20% is applied for transparency in tariff determination. It also recommended direct benefit transfer of subsidy to consumers to make cross-subsidy more focused and effective. Reduction of AT&C losses: In 2018-19, the Aggregate Technical and Commercial losses (AT&C losses) were 22%. In some states, these losses were as high as 60%. AT&C losses account for the proportion of power supplied by a discom for which it did not receive any payment. The Committee observed that these losses are majorly commercial in nature, and can be reduced through administrative interventions. It further observed that if AT&C losses were reduced by half, discoms would have been financially viable.
Optimising energy mix:
The Committee noted that installed capacity from all sources is about 389 GW, whereas maximum demand has been around 170 gigawatt. Capacity utilisation of coal and lignite-based plant has come down to about 53%. The renewable energy including solar has a must run status, which requires discoms to surrender conventional power to accommodate renewables. However, due to intermittent nature of renewables, balancing power from other sources is required for grid stability. The Committee recommended forming an expert committee to examine pooling of power at the central level such that an ideal mix of energy and provision of electricity to all states at uniform rate may be ensured.
The Standing Committee on Energy (Chair: Mr. Rajiv Ranjan Singh) submitted its report on the ‘Review of Power Tariff Policy-Need for uniformity across the Country’ on August 2, 2022. Key observations and recommendations are:
Tariff rationalisation:
The Committee observed that having a uniform tariff across the country at present or in one go would be very difficult. It noted that cost of supply of electricity varies due to varying generation, transmission, and distribution costs. States have been empowered to decide the tariff for different categories of consumers. Many states have created a large number of tariff categories based on socio-economic considerations (as high as 93). The Committee noted that the current tariff structure is varied and complex, and there is a need to rationalise various key components of power tariff. It recommended the central government to work with states to simplify the tariff structure.
Power Purchase Agreements (PPAs):
Power procurement cost constitutes a major portion of the cost of supply for distribution companies (discoms). About 90% of the power demand is met through long-term bilateral contracts between generators and discoms, known as PPAs. The Committee observed that discoms have signed PPAs at a higher cost as compared to prevailing market prices. This has adverse implications on their financial performance. It recommended rationalising the cost of PPAs. However, it also observed that re-negotiation of PPAs, unless mutually decided by parties, is not desirable as it may send adverse signals for future investment.
Payment of fixed costs:
Discoms pay generators in two parts: (i) fixed charges, reflective of capital investments, and (ii) variable charges, including cost of fuel for generation. The Committee observed that capacity utilisation of coal and lignite-based plants in 2020-21 was about 53%. Discoms have to pay a big amount as fixed cost even when plants are not utilised. This cost has to be ultimately passed on to end consumers. However, fixed cost is not being recovered fully at the distribution tariff level. The Committee recommended the government to explore avenues to reduce this burden on discoms.
Power exchanges:
The Committee noted that power exchanges can help bringing in uniform tariff across the country. However, current power purchased through exchanges is less than 5% of the total electricity generated, as most of the demand is met through long-term PPAs. It recommended the central government to: (i) develop the power exchange system, (ii) ensure availability of multiple exchanges to avoid any monopolies, and (iii) formulate regulations to prevent malpractices.
Cross subsidy:
Cross-subsidy refers to tariff arrangement where one consumer category pays a comparatively higher tariff to subsidise consumption of another consumer category. The Tariff Policy requires that tariffs for all consumer categories be brought within ±20% of the average cost of supply to them. The Committee recommended restriction of cross subsidy within a band. Further, a system may be adopted where the base tariff is the average cost of supply for all categories and ±20% is applied for transparency in tariff determination. It also recommended direct benefit transfer of subsidy to consumers to make cross-subsidy more focused and effective. Reduction of AT&C losses: In 2018-19, the Aggregate Technical and Commercial losses (AT&C losses) were 22%. In some states, these losses were as high as 60%. AT&C losses account for the proportion of power supplied by a discom for which it did not receive any payment. The Committee observed that these losses are majorly commercial in nature, and can be reduced through administrative interventions. It further observed that if AT&C losses were reduced by half, discoms would have been financially viable.
Optimising energy mix:
The Committee noted that installed capacity from all sources is about 389 GW, whereas maximum demand has been around 170 gigawatt. Capacity utilisation of coal and lignite-based plant has come down to about 53%. The renewable energy including solar has a must run status, which requires discoms to surrender conventional power to accommodate renewables. However, due to intermittent nature of renewables, balancing power from other sources is required for grid stability. The Committee recommended forming an expert committee to examine pooling of power at the central level such that an ideal mix of energy and provision of electricity to all states at uniform rate may be ensured.
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