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Gains from competition in power distribution
The Financial Express, March 24, 2010
By Rajesh Kumar
The Electricity Act,
2003, and National Electricity Policy, 2005,
envisage the provision of open access to
transmission & distribution networks to create
healthy competition and ensure efficient use of
energy. However, most state electricity regulatory
commissions have not taken any step to implement
open access. They point to several roadblocks in the
way of its implementation: inadequate transmission
capacity, non-desirability of duplication of
distribution networks, poor metering technology,
retail markets that are yet to attain maturity and
so on.
However, Mumbai presents
a marked and refreshing case as a result of sincere
efforts by the regulator, consumers/CSOs and some
distribution companies in the suburbs of the city.
As a result, even small consumer households can now
switch electricity suppliers if these are not
satisfied with the existing quality of service or
tariff.
The Mumbai experience
reveals that it is quite feasible to promote
workable competition in the distribution sector
without losing the economies of scale inherent in
wire business even with the existing level of
metering tsechnology and infrastructure. It has also
been argued that the Mumbai model of competition in
the distribution segment can easily be replicated in
Delhi and then extended to other states.
The important milestone
of this success was the landmark judgement of the
Supreme Court in June 2008, paving the way for Tata
Power to supply power to retail consumers being
served by Reliance Infrastructure under the
provisions of the Electricity Act, 2003. The court
observed that supply could be provided through the
distribution infrastructure installed and operated
by Reliance Infrastructure.
The court’s order bore
fruit only after October 2009 when the Maharashtra
Electricity Regulatory Commission passed detailed
guidelines specifying essential modalities relating
to the submission of applications for switch over,
metering, reading, billing, complaints redressal,
etc. The guidelines made the overall process
transparent and accountable and thus,
consumer-friendly. Such modalities emerged following
consultations with various stakeholders such as
Crisil Infrastructure Advisory, Mumbai Grahak
Panchayat and Prayas.
While making it clear
that there is no need for a consumer to take a
no-objection certificate (NOC) from the existing
supplier before switching, the regulations stressed
the need to pay all pending dues. The facilitation
of switching over breathed new life into
competition. Since its inception, Reliance
Infrastructure was the only distribution licensee
participant in the suburbs of Mumbai. For a long
time, Reliance consumers have been demanding access
to supply from Tata Power, given the lower tariffs
of the latter relative to the former—for example, Rs
1.30 versus Rs 1.72 per unit for less than 100 Kwh
of consumption.
Opportunities for
switching over, coupled with price differences, have
motivated 50,000 consumer households as well as some
bulk consumers such as Mumbai International Airport
Limited to move from Reliance to Tata Power. This is
a potent example of how competition can boost
consumer choice and welfare.
Cuts International, a
think-tank working on competition issues in
electricity as well as other utilities, has pointed
to the easy replicability of this model in Delhi,
citing various reasons. First, like Mumbai, the
distribution business in Delhi has been privatised,
providing reasonably good scope for competition.
Second, the prolonged legal battle in Mumbai—over
seven-eight years—has resulted in the fleshing out
of clear modalities that can be adapted without too
much change to facilitate open access in Delhi.
Third, like in Mumbai, most consumption in Delhi is
metered, making accurate calculation of energy
losses possible.
However, some experts
have expressed doubts about such replicability.
First, there are no significant differences in power
purchase costs across utilities in Delhi as most of
these draw energy from common sources. However,
significant differences across companies in terms of
percentage of distribution loss might actually make
the suggested replication economically beneficial—NDPL
owned by Tata exhibits the lowest level of losses
while Yamuna Power and Rajdhani exhibit different
levels despite being owned and operated by Reliance.
Moreover, facilitation
of switching might not only be beneficial from the
point of view of tariffs, but also quality of
service. This provides the rationale for the
promotion of competition even if prices potentially
on offer by competing suppliers are not very
different.
As long as geographical
monopolies in power supply exist, any talk about
promotion of competition in the electricity sector
will remain empty and bereft of significance for the
aam aadmi. The Mumbai model offers a strong ray of
hope and its replication in major urban centres
would mark the coming of age of competition in the
power sector.
The writer is an
assistant policy analyst at CUTS Centre for
Competition, Investment & Economic Regulation and
may be contacted at
rk2@cuts.org. These are his personal views.
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