While unbundling of generation and
transmission sector happened long ago, the distribution sector unbundling has
been a non-starter. Now and then efforts made for discom privatization could
not gather support because it was in form of replacement of public monopoly
with private monopoly. Access to affordable quality power availability will
remain a dream only till distribution sector is exposed to competition. Only
competition is expected to provide consumers with choice of supplier, affordable
and reliable power. All other network businesses like telecom, DTH etc have
already been unbundled and It is high time that distribution sector is also
unbundled separately into distribution (carrier) and Supply (content) so that
private and public players can compete with each other to bring in efficiency
and transparency.
The last serious efforts to unbundle
distribution were made in 2014 by the ministry of Power through draft amendment
bill for amending The Electricity Act. The draft bill reached the then standing
committee headed by Shri Kirit Somaiya. While the committee was broadly
supportive of the reforms, it gave few suggestions like providing flexibility
to the states, transparent handling of existing discom PPAs, address consumer’s
concerns, universal service obligation etc. Somehow, no progress could be made
after that. However, C&C segregation still remains a low hanging fruit for
reforms and could be a win-win for all stakeholders, namely the consumers, the
discoms and the government.
C& C segregation involves separation of the
function of supply of electricity from the business of distribution of
electricity and hence 2 licensees, namely Distribution licensee, for
providing non-discriminatory access to their distribution network system on
payment of regulated network access charges; and Supply licensees, competing
with each other to supply electricity to consumers in a particular area and use
the distribution system for such purpose
As pre-requisite for segregation of
C&C business of incumbent discom, appropriate amendments are required in the Electricity
Act. Further, assets & accounts of incumbent
discom is also required to be separated into distribution & supply functions.
However, this is only possible after attaining 100% metering of all consumers/
feeders/ substations & distribution transformers.
Existing PPA portfolio of incumbent distribution
licensee Is also required to be frozen and transferred to an intermediary
company backed by the government. This Intermediary company should be
responsible for working as a counterparty to all existing PPAs, selling power procured
through these PPAs through the existing wholesale market / trading /exchange;
and socialising all profits/ losses through a universal charge/ payment to all
existing suppliers according to a pre-agreed formula say weighted average cost
of power procured.
Separate
Licensing
Separate distribution & supply
licenses be provided by the SERCs after effective date of notification of new
amendments and existing licenses of incumbent distribution licensee to continue
only till its expiry or renewal, whichever is earlier. On expiry of term, the
incumbent distribution license needs to be split into separate distribution
& supply licenses for the area, respectively. Incumbent distribution
licensee may retain the supply license to function as provider of last resort till
new supply licensees step in. Distribution license may be issued for a longer
duration of 25 years whereas supply license be issued for a shorter duration of
3-5 years only, both having Universal Service Obligations & Standards of
Performance. To reduce regulatory discretion, a provision of deemed licensing
may be introduced for supply licensees provided they fulfil the norms on Capital
Adequacy, Credit worthiness and Code of Conduct rules.
Allocation of
Power from existing PPAs- This is
necessary to ensure continued servicing of legacy PPAs of incumbent discom.
While it will initially limit the supply licensees ability to source cheaper
power to offer best price for their consumers but is essential in national
interest so that these economic assets remain useful till their lifetime and do
not become NPAs. The Intermediary company should service existing PPA
obligations through the revenue stream generated by supply licensees/re-sale of
power through exchanges etc. It will analysis & compute year-wise weighted
average power purchase cost or APPC as per prevalent laws (MoD, RPO, must-run,
coal availability, demand etc.) and, will allocate weighted average fixed charges
(for all existing contracted capacities) and weighted average of energy charges
to incumbent supply licensee.
All supply licensees should procure
power only from the intermediary company’s PPA portfolio in proportion of their
contracted capacity till these PPAs are either exhausted or expire overtime. On
exhaustion or expiry of Intermediary Company PPAs, supply licensees shall be
free to procure power from sources of their choice.
Distribution
& Supply Tariffs: The success of
whole scheme of things will hinge upon how retail tariffs evolve overtime.
Unless there are long term benefits to the consumers in terms of price, reliability,
quality & value-added services etc, the reforms are not likely to be have
consumer’s acceptability. Therefore, design of distribution network access
charges/fixed charges for the distribution licensee needs to be regulated
keeping in view the growth in load & consumers, meeting quality &
performance of standards, and distribution losses. Only normative technical losses
for distribution should be allowed for the distribution network. Similarly, no commercial
losses (Billing & Collection related) be allowed for the supply licensees
by SERCs while fixing the retail supply ceiling, albeit nominal bad debt
provision may be considered.
Input cost of power for the supply
licensee should be based on weighted average power purchase cost from the
Intermediary company plus network access charges, wheeling charges &
distribution losses. To promote competition, only a ceiling tariff be provided
by the regulator for the supply licensees of an area. Within that ceiling, the
supply licensee can provide various incentives, TOD etc. by improving its
operational efficiency and reduction in its ROE/profit. All billing &
metering at retail level to be done by supply licensee including installation
of new meters by supply licensee based on consumers choice (plain vanilla or
Time of Day etc). Any subsidy from government should go as DBT directly to the
consumer’s account. A portability framework needs to be developed by the
regulators so that consumers have a choice to switch from one supply licensee
to another (only after a minimum lock in period)
If implemented diligently, unbundling
& introduction of separate C&C business in power distribution sector
will bring in benefits of competition and choice to the retail consumers.
However, all associated risks and challenges needs to be appropriately
mitigated by the government, the legislature, and the regulators so that
benefits of reform are win-win for all.
About the Author:
Raj Pratap Singh retired from IAS
has worked at senior positions at Central & State Government including PMO
and World Bank. Presently he is Chairman of UP Electricity Regulatory
Commission.
Disclaimer: Views expressed in
this article are author’s opinion and does not reflect any official position