Competition in the power sector in India

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Competition in the power sector in India
Prof. Sidharth Sinha IIM Ahmedabad
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Prerequisites

• Multiple operators
• Metering, billing and collection
• Direct subsidies
• A long tradition exists of customers being billed
  for their energy usage, paying for that energy
  usage and for the total revenues from all
  customers to meet or exceed the costs of service.
  This regulatory construct has been in place for
  over 75 years in New York.

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Financial Performance of the State Power
Sector(Economic Survey)
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Paths to competition

• Privatize existing (loss-making) monopolies
• Then Introduce competition
• Single buyer model
• Orissa and Delhi
• Introduce competition
• Open access and multiple licensees
• And reform/privatize monopolies
• Electricity Act 2003

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Delhi Privatization

• Government transition financial support
• (Rs.3,450 crores over 5 years)
• Licensee ATC reductions
• (17 over 5 years)
• Regulator Multi year tariffs to ensure 16
  return to licensees during transition
• Regulator did not commit to tariff principles
• Truing up mechanism
• Uniform retail tariffs
• Differential BST
• Power sector viable and self sufficient at the
  end of 5 years.
• Open access ?

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Loss reduction targets and achievements(ARR
2005-06)
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MeteringApril 2004
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Policy and actuals(Tariff Order for 2004-05)
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Proposed and Approved Revenue Gap(Tariff Order
for 2004-05)
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ARR 2005-06Projected Revenue Gap
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Electricity Act 2003Distribution

• Incumbent distribution monopoly with/ without
  generation facilities.
• Multiple distribution licensee for same area.
• Duty to supply in the license area
• Determination of license area (cross-subsidy)
• No license for generation and distribution in
  rural areas
• Common carrier

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Open access in Electricity Act 2003

• Consumers can contract directly with power
  supplier.
• 1 MW and above in five years
• Distribution licensee mandated to provide
  wheeling service. (Capacity availability)
• Surcharge for loss of cross subsidy
• (phase out but no time frame).
• Additional charge for fixed costs of obligation
  to supply.
• No surcharge for captive supply
• Definition of captive supply

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Cross subsidy measurement problems

• Definition of cross subsidy and cost of service.
• Cost to serve or Average cost (Andhra case)
• Agri supply off-peak
• Cost to serve agriculture Rs.1.72 (Rs.1,600 cr)
• Average cost Rs.2.83 (Rs. 2,850 crores)
• TD loss and consumption
• Unmetered agriculture consumption.
• Other unmetered or assessed consumption.
• Actual or efficient costs

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Allocated costs and RevnuesAP Tariff Order
2004-05
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AP Tariff Order 2004-05

• allowing captive generation and multiple
  licensees, without cross subsidization surcharge
  will have an adverse effect on the existing
  distribution licensees who have an universal
  service obligation for the entire area of supply.
  
• If the captive generation and second licensee
  take away the subsidizing consumers and the
  paying areas, the finances of the existing
  licensees will get affected without any fault of
  the existing licensees.
• In the transition period, the subsidizing
  consumers will move out of the existing
  distribution licensees making the above reduction
  and elimination of cross-subsidy more difficult.

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Replace cross subsidy with universal service
charge(Philippines)

• Cross subsidy removal in 3 years
• Targeting of subsidies. (lifeline rates)
• Universal service charge collection and
  disbursement.
• Missionary electrification. (SPUG)
• Similar to telecom Universal Service

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Physical and organizational separation of rural
and agriculture supply

• No individual metering
• Power coupons not possible
• Aggregate metering possible.
• Isolates the bulk of subsidy and cross subsidy.
• Philippines in the form of RESCOs

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Regulatory decisions

• Indal in Kerala (KERC) Jan 2004
• Open access allowed
• Cross-subsidy surcharge phased out
• No additional surcharge
• TISCO, Jamshedpur (OERC) August 2004
• Captive supply
• Open access without surcharge not allowed
• Aditya Cement (RERC) Feb 2004
• Open access without surcharge allowed

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BSES application for parallel license in NDMC

• Issues
• Loss of subsidy
• Cherry picking
• Right of Way
• DERC gives in principle approval
• Implications for parallel licenses in states