CIRC in MEDIA - February 2011

Electricity sector – Impediments to open access
The Financial Express, February 09, 2011

Navneet Sharma

The Electricity Act, 2003 (EA 2003) opened the power sector to multiple players by providing for a power market replete with competition. A key objective of EA 2003 was to provide ‘open access’ in electricity transmission and distribution. In other words, the Act mandates competition and choice, which were non-existent in the pre-EA 2003 era. Central to the emergence of a market is the provision of open access. Seven years have passed, but for a few instances of limited success (Mumbai, Karnataka etc), India's electricity consumer is yet to have the freedom to choose his electricity supplier. Why could not the open access provisions be activated so far?

Section 42, read along with other sections of EA 2003, is clear that the states ‘shall’ introduce open access to all consumers above one megawatt load. EA 2003 mandated open access in electricity transmission and distribution. It envisaged that all consumers above one megawatt will be free to source electricity from a supplier of their choice. So there remains no ambiguity whether or not to provide open access. This was discussed in a recent brainstorming meeting at the Planning Commission, where it emerged that a concerted effort is needed before all the stakeholders buy in and open access is activated. But let me first deal with what holds it back.

Is open access a ‘win-win’ proposition? In theory, this would be a win-win scenario if a distribution company (or discom) and the consumer both benefit from open access. But in reality, as in other sectors, there is much difficulty to persuade a monopolist/incumbent to give up its monopoly privileges. An oft-repeated concern by discoms has been that if large consumers shift, the discom (or utility) would suffer losses. But experience of other countries, such as the UK, shows it is not so. Also, in other sectors, for instance telecom, where consumers move freely to another supplier, competent players withstood such challenges.

That leads to another question relating to the political economy surrounding the electricity sector. In the sector, the regulatory framework includes the ministry of power and the Central Electricity Regulatory Commission (CERC) at the central level, and government departments and regulators at the state level–i.e. multiple bodies dealing with electricity regulation. Amidst multiple agencies and short-term and conflicting interests, the decision makers tend to succumb to local pressures and find ways to avoid open access. A plain answer is ‘political will’, which is necessary to create a competitive electricity market.

Next comes the nitty-gritty or specific regulation of open access i.e. lending regulatory clarity on the terms of open access. A basic principle of open access is that carrier and content should be separate. Some regulators have worked in this direction while others are yet to put in place the required regulatory clarity. For open access to be practicable, prices should be broken up in components like production cost and transmission loss cost, and also specific applicable charges against wheeling, stand by, cross subsidy etc should be determined. Consumers and discoms would be encouraged towards open access only when they have clarity on the charges.

A related aspect on charges is that if a category (of consumers) is competitive, then the discom should not charge it the regulated tariff but a negotiated tariff. Thus, in the case of competitive consumers there should be two separate agreements, one with the generator and the other with the distributor.

Though housing societies in urban centres, due to their bulk consumption above one megawatt, would qualify for open access, discoms are reluctant to give them open access. Discoms claim that such housing societies ‘distribute’ electricity without being ‘licensees’ within the meaning of EA 2003. Here, the intent of the law should prevail over the text, even though the text is adequately clear.

The definition of consumer provides that “consumer means any person who is supplied with electricity for his own use….” Also the ‘person’ includes any company or body corporate or association or body of individuals, whether incorporated or not, or artificial juridical person. Thus, the law has adequately clear intent to let all consumers freely buy their power on the most competitive terms. As long as there is no commercial or onward sale intent, housing societies should be empowered to buy electricity freely.

Finally, the most important issue is the impact of open access on poor consumers. Statistics reveal that while electricity generation has increased about 60%, the household access to power has increased only 10% in the last ten years. A question here is whether open access will let low-cost electricity go to poor consumers? Here again the answer flows from political economy considerations. Unless, regulatory intervention frees up the low-cost electricity that is tied up with discoms, the benefit to aam aadmi is still a distant dream.

The writer is director of CUTS Institute for Regulation and Competition. His views are personal.

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