Splitting carriage & content, losses big blocks
The revolution in the electricity market will be delayed. Even if the government manages to ensure passage of the requisite legislation in the winter session of Parliament, most major states would take four to five years to separate the businesses of carriage and content, a prerequisite for launching open access for retail consumers, according to a study by the country’s electricity regulators.
Once open access is introduced, consumers will be able to choose their electricity provider in much the same way they now select their telecom service provider. The resultant competition could spur efficiency and bring down tariffs.
Open access is now limited to industrial and commercial consumers with a load of 1 MW and above; in practice, even this is implemented sparingly as discoms and load despatch centres tend to protect their turf and stymie consumers’ access to competitors.
The Forum of Regulators (FOR), the statutory body that comprises central and state power regulators, in a report submitted to the Union power ministry recently said discoms’ heavy losses (R62,646 crore on a net basis in FY14) and mounting outstanding debt (over R3 lakh crore) could be a key impediment in implementing retail open access. Once content and carriage are separated, the companies that own the distribution networks would not supply power and ensure that when it comes to providing consumers access to suppliers, neutrality will be maintained. The number of suppliers in a given locality could, hence, increase, leading to competition.
The power ministry introduced the Electricity (Amendment) Bill, 2014, last year but the task of evolving a detailed plan for its roll-out was given to FOR.
In its report called “Roll-out plan for introduction of competition in retail sale of electricity”, a copy of which has been reviewed by FE, FOR has suggested that open access could be implemented in three steps. “In the first stage, the current discoms would be segregated into distribution and retail supply functions. Their individual roles and responsibilities will be defined and they would be equipped with enough financial and manpower resources to take on those roles,” it said. The second stage would require state governments to either disinvest their retail supply business or continue it as a state entity but with a separate ownership to ensure that all retail supply companies get free access to the distribution network. These two stages would take one to three years depending on the status of each discom and infrastructure that need to be created, and the third and final step of granting licences to multiple retail supplies could require another two years or so.
“The separation of content and carriage would require intense preparation in terms of getting proper accounting systems in place along with information technology infrastructure required to monitor the agreement between wire operator and retail suppliers,” Praveer Sinha, CEO, Tata Power Delhi Distribution (TPDDL), told FE. TPDDL is one of the three privately owned discoms operating in Delhi and participated in the deliberations for the report.
In the first stage alone, the existing regulatory assets of current discoms could be transferred to an intermediary company, said FOR. The same company could also house all the existing power purchase agreements (PPAs) of the incumbent discoms. The intermediary company would then amortise these assets by either collecting a universal charge or through financial support from state government.
For the PPAs, the state governments in their respective transfer schemes could shift to the wholesale market in case old PPAs are expensive. According to FOR, the state has to be one among the many supply licence holders.
The new retail supply companies would be allowed to enter into the market in gradual phases. “After the entry barriers are removed for the new retail supply companies, second (and subsequent) retail supply company would be allowed to enter the market in order to compete with incumbent retail supply company,” FOR said.
“Different states would require different amounts of time to get ready for the third stage but its a process that would need a gradual approach to ensure the existing discoms are ready for the final roll-out,” Sinha said. He added that even countries like UK and Australia needed seven to nine years to implement separation of carriage and content.