The Electricity Act 2003 was expected to introduce wide-ranging reforms in the power industry and attract much-needed private investment in a sector which had become moribund due to poor attention from policy makers. While reforms have been quite successful in generation and transmission, the distribution sector still remains an area of concern for policy makers.
For example, the Act has envisaged implementing an 'open access' regime to bring competition in electricity distribution. However, the idea has failed to take off because of resistance from distribution companies and practical problems in implementing the provisions.
Discoms are running huge losses as they are having to supply electricity below their power purchase cost due to non-revision of tariffs. Besides, discoms also supply electricity to farmers and weaker sections at subsidised tariffs. State governments are supposed to bear a part of the the subsidy burden. However, states hardly ever make full payment to discoms on account of electricity subsidy.
Discoms recover higher tariffs from industrial and commercial consumers to partly cross-subsidise electricity supply to farmers and weaker sections. If an existing industrial or commercial customer exits their network, discoms' tariff structure gets unbalanced. That is the reason they resist any move from creamy customers to seek electricity supply from any alternate source under the open access arrangement.
A case in point is Reliance Infrastructure's move to seek a revision in tariff after several high-paying customers switched to Tata Power's network in Mumbai.
The Maharashtra State Electricity Distribution Company (MSEDCL) is also facing a similar situation. About 51% of the power supplied by the state utility is unmetered. When a well-paying customer shifts to another supplier, it puts strain on the utility's tariff structure.
Practical problems relating to open access in power distribution were discussed in the 12th Regulators and Policymakers Retreat held by the Independent Power Producers Association of India (IPPAI) in Goa recently.
An open access customer is also required to sign a separate agreement for standby power supply in the event of disruption in power availability from the contracted supplier. It must pay standby charge to the local distribution company. This charge is decided by the customer and the discom through mutual negotiations and the regulator has no role to play.
These are the additional charges that a customer is required to pay if it wants to take electricity from a supplier other than the local distribution company.
These charges make open access a costlier option than taking power from the local discom. Besides, there is also the risk of the customer failing to tie up power supply under open access given that many states continue to face power shortages.
Open access has been successfully implemented in many developed countries because of separation of network ownership and power supply. While distribution network is still owned and operated by monopolies, there are multiple suppliers of electricity using the same network.
In contrast, we have a situation in India where network owner and electricity supplier happen to be the same entity
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