Electricity Portability

Submitted by VK Gupta on Sun, 15/02/2015 - 6:16pm

Electricity Portability

Much hype has been created about the Electricity (Amendment) bill 2014 that the power consumers in the country would have the option of portability of electricity services on the pattern of mobile phone services.
The Governments proposed formula for ensuring lower power tariffs is competition between power companies. It has been claimed that like mobile service operators, if consumers are given the freedom to choose their power distribution company, electricity would become less expensive. The logic is tempting, but over simplistic.
The concept of multiple supply licensees has been proposed in Electricity (Amendment) Act 2014 by segregating the carriage (Distribution network) from content (electricity supply business) in the distribution sector and determination of tariff based on market principles, while continuing with the carriage (distribution network) as a regulated activity.
Based on the experience gained over the years splitting of power distribution network has not yielded the desired results but the Government has introduced the Electricity (Amendment) bill 2014 in Parliament. Lok Sabha Speaker has referred the bill to Standing Committee on Energy for examination after taking in to views of various stake holders.

The proposal of separation of carriage from content and consumer choice was introduced in United Kingdom under ideal conditions and in contrast the conditions are totally different and adverse in the Indian scenario In UK there was surplus of power generation capacity with no transmission constraints. The distribution sector in good financial health, AT&C losses at low levels and all consumers were having electrified households. All these conditions does not exist in India.
The main objective of the amendment seems to be to push the commercialization of electricity, opening up the sector before the profit motive of international corporate houses. The priorities of Government seems to be in favour of high income groups where people want 24X7 quality power supply without bothering for tariff. The fate of those poor people who do not have have power connection will be simply sealed as the power generation in country is much lower than power demand.
Power Ministry claims that it held consultations with various stakeholders including managements of state and private power utilities. But the Government ignored the biggest stake holders the power utility engineers and employees and did not think it proper to have discussion with them. It was expected a thorough review of the present situation will be made before attempting an amendment in any Act. But it is unfortunate that such a review had not taken place yet. Even a status report on the experience of the implementation of Electricity Act 2003 had not been placed before the public along with the proposal of the amendment.
Power sector is facing serious challenges such as large scale financial losses, rising tariffs, deteriorating performance of existing plants, fuel availability and quality related concerns and poor quality of supply and service. The proposed amendments aim at making fundamental changes to the sector structure and organization, but it is not clear how these changes will help in tackling the issues mentioned above.
The bill if passed by Parliament, consumers could get the choice to buy power from companies of their choice rather than being tied to a single provider as is the case in most states. At the same time this could accelerate a process by which state utilities' losses deepen, imposing a heavy fiscal burden on the respective state governments. The concept of multiple power suppliers will lead to total privatization of power supply in country.

The experience and effect of market power in a scarce market has not been considered in formulating the proposal. As India is energy starved nation, reducing price of power through competition is impractical. The multiple licensee system will help only "cherry picking" and the deterioration of the incumbent public sector licensee, which will be the only responsible for supplying electricity to the unprivileged common man.
This simply means nationalizing the losses and privatizing the profits.
The competition is possible only in a situation of surplus, not scarcity of electricity, which the country was facing. As per census 2011 figures, close to 45% of rural India lack access to electricity. More than 33% of Indian households are still have no access to electricity. Moreover, even in cities, households suffer on account of shortage of power. At present nearly 40 % population of country does not have access to power as they cannot afford power even at existing rates. Therefore giving multiple licenses of supply will lead to chaos, heavy losses of Discoms, endless litigations and sky level tariff hike for common people.
This is an extremely serious issue given the financial dependence of state distribution companies on the revenue from high end consumers.
The practical impact of proposed amendments will be inability of the State Discoms to make investments for extending power supply to 80 million un-electrified households and making it impossible to achieve the Govt. of India objective/ target of 24x7 supply for all consumers by 2018-19
Even in the current regime, the so called open access is allowed for larger consumers with a load of 1 MW and above. A factory in any industrial city of the country can, in theory, at least, buy power from any provider in the country, or even from a short-term power market rather than from the public sector power utility. But open access never really took off for one simple reason that the : the biggest loser in this deal is state sector power utility who controlled the transmission system and is entitled to a surcharge for allowing its transmission system to be used to supply power. The state regulatory commissions often set very high surcharge making any open access deal financially unviable.
What the new reforms aim to do is to take the physical wire network and move that into a separate company for a given region or area. Within a given area, multiple distribution companies would be licensed to operate and offer power to consumers, with all of them having the right to supply power to a given consumer, while paying fixed charges to the power distribution utility. The licensee will be will be only responsible for billing you for the power you used, and collecting money.
It may be mentioned that inadequate transmission structure to transmission power from one region to the other is one of the main constraints for power shortage in southern states though surplus power from different sources is available in other regions. The expansion in transmission system in country has not matched with the capacity addition.

With the enactment and implementation of Electricity Act, 2003, State Electricity Boards were dissolved, splitting into generation, distribution and transmission companies. Government cherished with the investment and participation of private players, Electricity tariff will come down and abundant Electricity will be made available for the development of the country. It is a well known fact that the stability of the power sector on a whole has gone down since the enactment of Electricity Act 2003, though there are achievements in some areas. From a common man’s view point, the electricity is fast becoming a costly affair going beyond his hold.
In the name of competition and efficiency in the supply of electricity with more than one supply licensee offering supply of electricity to consumers in the same area, separation of carriage and content in the distribution sector is being looked at. Multiple supply licensees at the same area of operation is aimed at retail competition thus to tide over the impractical proposal of multiple distribution licensees existing in Act 2003. Even though there is a dream of improving quality and reducing cost through market competition, the reality is different.
As per the amendment anybody applying for a licensee has the right to get a license and there is every chance of non-serious players to come in as licensee and collect security deposits and fly away. The amendment is silent on the mechanism of setting off the power flow between supply licensees and distribution licensee. Since incumbent licensee has the responsibility of serving power to every consumer as a last resort it has to formulate its power purchase plans. But it will fall in trouble due to black box strategies of other licensees.
As per the amendment there is provision for franchising distribution as well as .supply of electricity. Past performance of several input based distribution franchisees suggests the need to bring its functioning and operation under regulatory scrutiny. Performance of the franchisees affects the licensee's financial health and hence the rest of its consumers. There are several cases of franchisees not properly paying their bills to the Discoms for several months, thereby severely straining the Discoms working capital needs.
Even though there is a provision for cross subsidy surcharge even if it is applicable to supply licensees as well, collecting the same from different supply licensees will be practically difficult and disputable. Ultimately the incumbent licensee will not be able to recover its loss of cross- subsidy. This is an extremely serious issue given the financial dependence of State distribution companies on the revenue from high end consumers. Eventually all these changes will lead the system to chaos and it will ultimately affect the social development of the nation.

Even though electricity is a matter on the concurrent list in the Constitution, the powers of the State Governments, which are already shackled to a large extent by virtue of Electricity Act 2003, are seen likely to be curtailed by the proposed amendments.
This will severely affect the Centre –State relations which are against the vision of your good governance. In India, the situation in power sector, such as consumer mix, consumer spread, sources of generation, ownership pattern etc. are vastly different from states to states. The priorities and strategies of development of the states will be different and will also be having their own stake in deciding the structure of the sector, development strategies and Tariff design including decisions on subsidies and cross subsidies of Electricity. Hence making the policy decisions of Central Government as mandatory is against the federal set up of governance and is not proper.
The proposal sheds the powers of state government issuing policy directions to Regulatory commissions and generating companies as per section 108 and section 11 of the Act. These proposals are also against the federal system of the nation.
The moot question is whether the states will be willing to give up their control over electricity. Tamilnadu has already come out against the Electricity (Amendment) Bill, 2014, introduced in the Lok Sabha and has urged Prime Minister withdrawn it immediately as the move has been made without consulting the States. Such a skewed amendment to the Electricity Act without proper consultation with the State governments at the appropriate level, and without considering their views, is totally against the federal spirit of the Indian Constitution and cooperative federalism. By separating carriage and content in the distribution sector, this Bill, in one stroke, will make all power utilities in the public sector totally unviable.
It is suggested that powers to the State Government may be restored to such an extent that the State Government can at least decide on matters within its territory without contravening the Central Act. This will help to have more flexibility in the implementation of any proposal considering the diverse demographic and geographic structure of States in our country.
The bill also proposes to reduce the tenure of members of regulatory commissions from five years now to three years with a provision for another extension up to age of 65 years. The provision for reappointment is not desirable from good governance point of view and the same should be removed. The performance of members and chairpersons of state electricity regulatory commissions will be assessed by an evaluation committee that will have the power to remove or reappoint them based on their record.
The proposed system of separating out supply from wires business involves a foolproof and dispute free system of energy accounting and loss determination. Energy accounting and loss determination itself would make the proposed system unmanageable and full of disputes. An elaborate and computerized energy accounting and loss accounting systems are nowhere in existence and without these the commercial aspects of energy supply simply cannot be settled.
Today the aspirations amongst the consumers are very high. They want good quality round the clock power and two things are critical to this. Power generators ability to charge generation cost plus charges from Distribution Company and distribution companies' ability to pass it on to consumers after including AT&C losses and office expenses. Both of them are difficult to achieve . In case of any mismatch the whole process would be derailed and electricity portability even in a city like New Delhi will remain a dream.
The ball is clearly in the government's court. If it has to keep its promises to the people, the government will have to wade through the regulatory rigmarole and make it a win-win situation for both the power sector players as well as for consumers. Its failure to do so would sound the death knell for the entire power sector.

Vinod Kumar Gupta
[email protected]