Power to all, and how

The Asian Age, December 22, 2014

By Pradeep S Mehta

In order for the energy markets to be efficient they will have to be competitive and well regulated. But the necessary condition for that to happen is the removal of the dead hand of politics from the sector

Earlier this month, energy minister Piyush Goyal announced that the proposed amendments to the Electricity Act, 2003, will allow consumers to exercise their choice to select the electricity supplier. This will boost competition, resulting in lower prices and better service. In technical term, this is called open access.

International experience in open access has been very encouraging. During the last decade, electricity prices in the UK fell by over 30 per cent and similar trends were visible in the US and Europe. In these countries domestic consumers do have choices, and they do exercise it. Electricity Act 2003 does not allow open access for consumers above one megawatt, and now the proposal is to bring down this limit, thus opening the retail power sector to competition.

Another critical amendment will be to separate carriage and content, i.e. distribution will be done by multiple players, while the carriage — the line infrastructure will belong to a different operator whose job will be just to transmit power for different suppliers through the same wire network. In its Competition & Regulation in India, 2007 report, CUTS (Centre for Competition, Investment & Regulation) had advocated such a step on the argument that in the mobile telephony sector all towers are independent entities which are used by different operators to reach out to their consumers.

Reform is a slow and often uphill task. The basic idea behind reforms initiated in 1991 was to convert the traditionally monopolistic system into a competitive and market oriented one. Further, in 1998-99 restructuring of state electricity boards was also introduced with the objective of ensuring competition, transparency and accountability in various segments of power industry and promoting greater efficiency by streamlining operations of distribution, transmission, generation and trading.

Although Mr Goyal is confident in negotiating all the hurdles faced by the previous regimes, it is important to understand that previous reform measures were not so successful owing to several endemic problems plaguing the sector. Promoting competition through the open access has always existed in the law, but its implementation being laggard is a glaring example of regulatory failure.

Nevertheless, there is one shining example of a successful open access in retail distribution for consumers below one megawatt. In 2011-12, about 120,000 customers in Navi Mumbai switched from Reliance Infrastructure (RInfra) to Tata Power Company (TPC). Out of the total consumers who opted out of RInfra, 88 per cent accounted for retail customers.

In August 2012, Maharashtra Electricity Regulatory Commission (MERC) intervened, and decided that only residential consumers using up to 300 units (KW) a month will be allowed to move from RInfra to TPC. Although MERC justified its order, saying its intervention was to ensure a level-playing field between distribution companies and also to take care of the interests of low-end consumers. However, such instances indicate restrictive regulatory interventions that are not determined by market forces.

For years now there has been propaganda to push the idea of “open access” in electricity transmission and distribution lines if capacity is available. This could be a major breakthrough for optimising the supply-demand balance in electricity but there are challenges that need to be overcome. First, of course, is that there must be adequate transmission capacity for power to flow from points of surplus to where there is demand. They must always be well-maintained in all parts of the country so that the national grid can work seamlessly. The double collapse in two days of the northern grid earlier this year proved that none of these pre-conditions existed. Besides, we are yet to have a national grid in the country which can reach out to all the corners.

Secondly, substantial transmission and distribution losses has been the bane of the electricity system. These are due to poor maintenance of wires, considerable theft by consumers and non-payment of bills, collusion of discom staff combined with poor policing results in high T&D losses. These impose a huge financial burden on the companies which then get passed onto consumers.

Thirdly, state governments want to ensure that even the poorest consumer along with farmers get electricity at a low price or free. To achieve this objective, state governments provide subsidies to the discoms in the form of reimbursements from the state budget. However, in practice, one often sees that reimbursement of subsidies to the discoms by the state government is often not done at all or not in full, causing losses which are then recovered from consumers.

Lastly, open access means consumers have a choice of supplier of electricity. However, in the case where public distribution companies are the only choice, it is as good as having no choice. In Maharashtra, West Bengal, Delhi, etc, there are private and public sector distribution companies, whereas in states like Rajasthan and Karnataka, distribution of electricity is restricted to public sector companies only. Thus, there is a need to bring in more private players in transmission and distribution in order to ensure real application of open access pan India. Changes are needed in the political economy and regulatory framework governing the statutory body to boost competition and encourage private sector participation.

The problem is not that India does not know what needs to be done or in which direction it should proceed. In order for the energy markets to be efficient they will have to be competitive and well regulated. But the necessary condition for that to happen is the removal of the dead hand of politics from the sector.

It is instructive, in this context, to find that even the Planning Commission had recognised political interference to be a major problem. This is what the approach paper to the 11th Plan said: “AT&C losses have to be brought down from the current level of around 40 percent to at least 15 per cent by the end of the 11th Plan. This can be done if the management of SEBs are professionalised and given autonomy of operation without political interference”. But in the very next line it says, “Half the country’s population is today without electricity”, which appears to be an invitation to politicians to interfere.

Thus, in order to achieve the goal of “power to all” in India, the energy minister needs to be cognisant of all the challenges as mentioned above and present a clear way forward to overcome them in order to live up to the government’s motto of “achche din”, which is the need of the hour for consumers and producers of power in India. In doing so it must get all the states on board.

The writer is secretary-general, CUTS International. Gaurav Shukla of CUTS contributed to this article.

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