Powergrid makes case for new model

Written by fe Bureau | Updated: Nov 20 2012, 02:09am hrs
Separation of wire from supply will take the investment load off state electricity boards

Powergrid has moved the Orissa Electricity Regulatory Commission for a licence to maintain and operate the power distribution network in the Cuttack circle, a move that may prove a legal test case for the separation of power supply and network businesses in the country.

The central public sector enterprise (CPSE) has submitted before the regulator that it would make required investment to expand and maintain the network. Separation of wire will encourage competition in power distribution business.

Power supply and operation of network are two separate businesses in several developed countries. However, the Indian Electricity Act 2003 does not have any explicit provisions to this effect. Though there are enabling provisions for multiple players setting up separate networks in the same circle to supply power, there are few takers for such intra-circle competition.

In India, the power supplier is also the network owner and operatoran arrangement that has proved a major obstacle to encouraging competition in the sector.

If the regulator takes a favourable view of the CPSE's petition and issues a licence, it would strengthen the legal case for introducing a separate power supply-network ownership model in the rest of the country. However, resolving practical difficulties would still remain a serious challenge.

Central Electricity Regulatory Commission (CERC) chairman Pramod Deo sounded skeptical about the idea. There are issues like who will bear distribution losses in case wire business is separated, he said.

Significantly, the Union power ministry has asked states to treat consumers with load of 1 Mw and above as mandatory open access customers. If this interpretation is adopted, regulators will have no authority to determine the tariff of these consumers.

However, states remain averse to implementing the policy direction for fear of losing well-paying commercial and industrial customers. This is a major roadblock to promoting competition in the power market. However, if the separate wire-power business model is adopted, this obstacle can be overcome.

Industry experts cite the example of power transmission business where the network is owned by Powergrid and power is fed into the network by several players. Since distribution is an extension of transmission, there is no question why the model cannot be replicated, though road maps may differ.

Separation of wire and supply business can be an ultimate goal but it has to pass through a roadmap. In other words, in initial stages it could be open access to a limited number of customers and progressively expand it as an option to all customers, RV Shahi, a former Union power secretary, told FE.

Significantly, the power distribution network in the country remains in bad shape as majority of state-owned discoms are unable to make required investment in their distribution network due to their poor financial health.

If the model is adopted, state electricity boards will be relieved of the burden to invest in infrastructure development, critical for the sustainability of their business. This will save state resources for investment in social infrastructure.