People and companies in India may be able to buy electricity from a power company of their choice. People and companies in India may be able to buy electricity from a power company of their choice, and have it supplied to them by the distribution network that services the neighbourhood in which they live, if the Indian government goes ahead with a radical plan to separate the so-called carriage and content operations of existing power distribution companies. The result, apart from choice for consumers, would be lower tariffs because of the competition. Power minister Jyotiraditya Scindia mentioned the plans for separation of content and carriage operations in a press briefing on Thursday. He added that the implementation of the plan would require changes in the Electricity Act of 2003. A power ministry official who asked not to be identified said the amendments would likely be introduced in the coming winter session of Parliament. Press Trust of India first reported the plan in March, quoting unnamed people in the power ministry. UK, New Zealand, and 24 states in US allow some form of retail competition in power. The power ministry has set up a group that is working on ways to implement the plan which will require a separation of the distribution and the retail supply business, with separate licences for each. And given that consumers will be able to choose their supplier, multiple retail supply licences will have to be issued for each area. “A white paper to this effect has already been circulated and the Union government is in consultation with the states for the same,” said a second power ministry official, who also spoke on the condition of anonymity. Most Indian states have monopoly power distributors with distribution licensees owning the distribution infrastructure. State electricity distribution companies, or discoms, face losses and are burdened by a total liability of Rs.246,000 crore, and a plan such as the one being considered could motivate distributors to improve their operational and financial performance. The earlier reforms in the sector resulted in the unbundling of generation, transmission and distribution businesses. Scindia added that a complete separation of carriage and content would result in perfect competition in the sector and hence better tariffs. Carriage refers to the distribution aspect and content to power itself. In industry argot, these are known as “wire” and “supply”. It won’t be easy to implement the plan, said a power company executive. “While the distribution of electricity is done by the state governments, central government will provide the provision by amending the Act. Knowing the condition of state distribution companies, it is difficult to do this,” said Praveer Sinha, chief executive officer and executive director, Tata Power Delhi Distribution Ltd. “This is a good step but the country is not ready due to the lack of technology and architecture to carry it out,” he said. “To start with, it can happen in a few cities such as Mumbai, New Delhi, Kolkata, Ahmedabad and Surat and in five to seven years in other places.” And there are multiple issues to be considered, said an expert. “The (Electricity) Act needs to be amended. The issue has been discussed in the forum of regulators. The concept is good but how do you implement it? The unresolved part is who takes care of the past liabilities as well as the aggregate technical and commercial losses,” said Shubhranshu Patnaik , senior director, consulting, energy and resources at Deloitte Touche Tohmatsu India Pvt. Ltd, an audit and consultancy firm. Still, it is a “forward-looking” move, he said. Apart from the complexity involved, the merits of such separation are still being debated, said another expert. “Wires and retail separation and intended competition in retail segment is going to be complex in India, given the level of cross-subsidy that exists between consumer categories. Avoiding network duplication and cherry picking of customers will be important for making it a success. As such, internally the jury is still out if retail competition in electricity is desirable and beneficial for customers,” said Debasish Mishra, senior director at Deloitte. The ministry is also expecting some resistance. “No one wants their monopoly to go away,” said the second power ministry official cited above. Still, a separation may help infuse capital into a sector that desperately needs funds. Since the health of the power distribution sector holds the key to the success of generation projects, the government is worried about the funding scarcity facing the power sector, which threatens to worsen an energy deficit that is seen as a key bottleneck in efforts to sustain and boost economic growth. “30% of the investment cycle is determined by the power sector,” said Scindia, speaking to reporters after completing 300 days in office. In September last year, the government announced a bailout plan for state government-owned distribution companies that were finding it difficult to raise working capital. While the financial restructuring of four state discoms—of Tamil Nadu, Uttar Pradesh, Rajasthan and Haryana— amounting to Rs.95,252 crore, has been finalized, special dispensation has been taken up for Jharkhand, Bihar, Andhra Pradesh and Karnataka. In Mumbai, consumers can choose from either of two electricity distributors—Tata Power Ltd or Reliance Infrastructure Ltd—but this is largely because of historical reasons (dating back to a 1906 licence given to Tata Power) and has been the cause for much litigation in the 2000s after Reliance Infrastructure Ltd acquired BSES and Tata Power started taking away Reliance Infrastructure customers. Interestingly, the Electricity Act of 2003 allows open access. This means access to use the wire by paying a transmission or wheeling charge to the owner of the network. Network business being a natural monopoly, the regulator must ensure that there is non-discriminatory open access, that is, if the network has capacity, the utility cannot decline the use of it by anyone. The plan being considered now is different because it allows retail competition, say experts. Every licensee has an “area of supply” specified in its license. It has “universal service obligation” in this area—it cannot deny anyone power, if asked. Retail competition also means a new entrant can poach from the original licensee. Scindia also spoke about several other issues at the meeting. The power ministry has moved a cabinet note for the proposed gas pooling policy to supplement domestic natural gas with imported liquefied natural gas, he said. In addition, the government is also working on a peaking power policy for all fuel types such as hydro, gas, coal and renewable, that will encourage discoms to invite bids from generation utilities for meeting power shortages during peak consumption hours. Mint reported on 9 May that the power ministry was working on a plan to provide a cheaper substitute for diesel sets used to meet peak power demand. “The peaking power policy will be for all input sources. It will be an all-pervasive policy,” Scindia said. The power ministry has moved a cabinet note for providing full independence and autonomy to Power System Operation Corp. Ltd and circulated the model State Electricity Distribution Responsibility Bill 2013 on the lines of Fiscal Responsibility and Budget Management Act, to be adopted by the states to enforce discipline in the working of the beleaguered state power distribution companies. Scindia also expressed confidence in investors’ interest in the proposed bids for the award of new 4,000 megawatt power projects as a new set of standard bid documents have taken care of the fuel risk and land issues.
Posted on: Sun, 17 Nov 2013 13:35:40 +0000