Deviation Settlement Mechanism Implementation Begins in Maharashtra

The Maharashtra Electricity Regulatory Commission (MERC) has passed an order to resolve multiple issues relating to the commercial implementation of the Deviation Settlement Mechanism (DSM) Regulations.

The Commission notified that the commercial arrangements specified under the DSM regulations and the related provisions regarding deviation charges and additional charges would come into effect from October 11, 2021. The period from October 11, 2021, to April 10, 2022, will be considered as the initial stabilization period.

The energy charges paid to generators would be based on actual generation until October 10, 2021, and on scheduled generation from October 11, 2021. It has directed the State Load Despatch Center (SLDC) to submit the updated DSM procedure after incorporating all the directives and clarifications and submit it for approval within one month from the date of this order.

The order was based on the recommendations given by the DSM working group constituted by the Commission on January 7, 2019. It submitted its report to the Commission on October 1, 2021, along with an analysis of the extended mock trial run period, DSM bills, stakeholder concerns, operational difficulties, and recommendations on implementing the DSM regulations.


The MERC had previously commenced the implementation of the DSM regulations in a graded manner. It allowed a relaxed volume limit of 50 MW against 30 MW specified under the DSM regulations. The stakeholders, Tata Power Company (TPC) and Adani Electricity Mumbai (AEML), had raised concerns with the working group regarding the following areas of commercial implementation of DSM regulations:

  • Implementation of principles of standby power arrangement under DSM framework
  • Treatment of deviation on account of changeover consumers under the DSM regime
  • Issues related to the operationalization of the virtual state entity (VSE) schedule
  • Issues with the levy of deviation charges on sellers
  • Issues with the volume limit of sellers being uniform

Commission’s Analysis and Ruling

The Commission accepted the recommendations of the working group and released the following ruling on the various issues raised by the stakeholders:

  • The settlement of energy and deviations for the first three time blocks from the standby activation should be done separately outside the DSM software. It also stated that the drawal schedule of Maharashtra State Electricity Distribution Company (MSEDCL) would be subject to a revision from the first time block.
  • The relaxed volume limits allowed for all the state entities are to be continued for the stabilization period without any revision, subject to review of the stabilization period.
  • The time block-wise settlement of power exchange on account of actions initiated by the SLDC will be settled at the applicable deviation rate, including additional deviation charges for the state at the state periphery for the respective time block. It stated that based on the experience of Virtual State Entity (VSE) operations and after a review of the stabilization period, the regulations could be amended in the future.
  • The Commission noted that Maharashtra State Power Generation Company (MSPGCL) was not following the Final Balancing Settlement Mechanism (FBSM) schedule and had a 22% deviation. This resulted in significant deviation charges being levied on sellers.
  • The Commission waived additional deviation charges for the initial four weeks of the stabilization period to the sellers. MSLDC could recover the shortfall from all state entities, including the sellers, as per the principles stated under the DSM regulations.
  • The working group has to review the deviation management practices followed by sellers and the resultant impact on deviation charges during the stabilization period.
  • The Commission decided to continue with the existing volume limits for the sellers and decided to take a fresh view on the volume limits linked to plant capacity after analyzing the results of the stabilization period.

The Commission also directed the Maharashtra State Power Committee (MSPC) constituted by the MSLDC for the governance of the DSM mechanism to commence its functioning. MSLDC was also directed to ensure the payment security mechanism through a letter of credit or a corpus mechanism.

It ordered the working group to monitor the implementation of the DSM framework with MSLDC and other stakeholders. The working group was asked to submit recommendations based on its analysis of DSM bills issued during the stabilization period, feedback from stakeholders, and review of their performance during the stabilization period. The report has to be submitted by March 15, 2022.

The Commission rescheduled the implementation of the DSM regulations last year due to the Covid-19 and Cyclone Amphan crises.

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