What was mandated in a law framed more than eight years ago is now being enforced through an executive order. The Electricity Act was approved by Parliament in 2003, bringing in its wake a host of reforms in the power sector, including the setting up of independent regulators to set tariffs for consumers through a transparent and non-discretionary mechanism. While several of the mandated reform measures were introduced in most states in phases over the last few years, a key provision has still remained unimplemented. This pertains to what is commonly referred to as the open access facility for consumers — a system that should have allowed consumers the choice to get their power from the distribution company offering the best deal. Open access, therefore, is a critical element in the new distribution regime. Indeed, the new law has put in place a regulatory framework and a system for tariff-based bidding for new projects — but without open access, the real benefits of the reform have eluded its primary constituency, consumers. This is a telling comment on the slow pace of reforms in India even when enabling legislation is in place. The Union power ministry’s decision to issue orders to implement the open access system, therefore, should encourage electricity consumers to expect the benefits of competition — better service, and perhaps lower tariffs.
Celebration, however, may be a little premature, and for more than one reason. First, the power ministry’s order on introducing open access is qualified by many conditions. One of them stipulates that power utilities will now be free to negotiate tariffs with all consumers with a demand load of over 1 MW, irrespective of where they are located. Thus, the freedom of open access is limited only to consumers with a minimum demand of 1 MW. Housing societies or commercial complexes could take advantage of the new system, but ordinary individuals will continue to remain tied, without the option of choosing their power distributor — unlike their counterparts in many other developed markets. Experience in developed markets also shows that both the electricity market and power utilities become more efficient when the regulator extends to all electricity customers the benefits of open access. The sooner the regulator grants that freedom to all, the better for the country’s power sector.
The second, and perhaps more important reason for overseeing the implementation of the open access system with caution, is how state electricity regulators have recently surrendered to the wishes of the political establishment. Several petitions for tariff revision been kept in abeyance because of directions from state chief ministers, and even distribution companies have succeeded in stalling other reforms, citing financial difficulties. It is true that the open access system can cause additional financial stress for distribution companies, as paying customers are more likely to move to alternative sources with a more attractive tariff package. Regulators need to be aware of such developments, but the way forward would be to find a solution to the financial problems of the distribution companies, not to undermine the open access system.