Power hurdles: Consumers need to wait before they can choose supplier

Latest amendments to the Electricity Act might not be enough to remove existing obstacles.

Providing consumers the right to choose their preferred power supplier would be challenging even after the amendments to the Electricity Act. Lack of multiple power distribution companies (discoms) in several states, tepid interest for privatisation of discoms and no overarching regulations are some of the hindrances in the path of a dynamic electricity retail market.

The latest amendments to the Electricity Act, 2003 seek to abolish power “distribution licence” and allow any company to supply electricity in an area, after necessary regulatory approval. With this, the Centre plans to end the monopoly of existing discoms, which are mostly state-owned entities, and throw open the market to private discoms.

The amended terms in the Electricity Bill, 2021 will be tabled in the current monsoon session of the Parliament. A new section 24 (A) in the Bill lays down "any company which fulfils prescribed qualifications and has registered itself with the Appropriate Commission may supply electricity to consumers in its area of supply either using its own distribution system or using the distribution system of another distribution company, provided that it complies with the provisions of the Act”.

The Bill has replaced the term ‘distribution licensee’, and replaced it with ‘distribution company’. It has also allowed two or more discoms to register and distribute electricity in the same areas. Existing power purchase agreements would be shared by all discoms in an area. Companies could also sign additional power purchase agreements.

The amendment follows the announcement made by finance minister Nirmala Sitharaman in her Union Budget speech. Addressing the existing discoms as monopolies, she said, “There is a need to provide choice to the consumers by promoting competition. A framework will be put in place to give consumers alternatives to choose from among more than one distribution company.”

Currently, it is only in Delhi and Mumbai that there are more than one discom. In Delhi it is Tata Power Delhi Distribution Ltd (TPDDL) and Reliance Infra led BSES Ltd. In Mumbai, there is Tata Power and Adani Electricity as two private discoms and BEST under the aegis of the state. But it is only in Mumbai that switching is allowed. The supply areas of Adani Electricity were owned by Reliance Infra till 2018, after which it sold its business to Adani.

The Maharashtra Electricity Regulatory Commission (MERC) in 2013 allowed the consumers with load upto 300 units to change their power supplier. Close to 15,000 consumers shifted from RInfra to Tata Power, owing to the lower power rates offered by the latter.

As the power supply network or the infrastructure belonged to RInfra, for the consumers which switched over to Tata, the company paid wheeling charges to RInfra. The consumers were directed to pay cross-subsidy charges and regulatory assets charges under a 2014 order of the Appellate Tribunal for Electricity. This became a disincentive for  residential consumers to change their discom, however, industrial consumers continued to change over to Tata.

This kind of changeover, however, did not happen in other parts of the country. The reason being lack of multiple suppliers. The two Delhi discoms are in a joint venture with the state government and with marked areas. In Gujarat, Torrent Power has power distribution licence in Ahmedabad, Gandhinagar, Surat, Dahej SEZ and Dholera SIR. The company also has licence for Bhiwandi, Shil, Mumbra and Kalwa in Maharashtra and Agra, Uttar Pradesh. But these areas are exclusive to Torrent and there is no other player in these cities.

In several big states such as Uttar Pradesh, Rajasthan, Haryana etc, while there are more than one state-owned discom, their area of supply is exclusive to them. At the same time, none of these states have awarded private distribution licenses. It is only in Odisha that private distribution licence award has been a success, after suffering a mega failure.

RInfra was awarded three power distribution licences in Odisha in 2003 but they were cancelled 15 years later after the company was unable to turn around the power supply business in the areas allotted to it. Odisha opened up the sector again, by awarding four zones – NESCO, WESCO, CESU and SOUTHCO for private distribution licence. Tata Power won all four tenders.

The finance minister last year in her Covid relief package announced that discoms of all union territories would be privatised. Chandigarh and Dadar and Nagar Haveli and Daman and Diu since then floated tenders for discom privatisation but it has not met success. All the tenders are facing legal petitions by either employees or individuals protesting against the privatisation bid. In the case of Chandigarh, the bidders have challenged the terms of bidding.