Introducing middle man in power distribution

Introducing middle man in power distribution

We are in midst of a major shift in power distribution operation where the Electricity (Amendment ) Bill 2014 seeks to segregate the distribution network from the electricity supply business leading to introduction of middle man.
Government have been projecting the segregation of electricity distribution and supply as a move that will enable consumers to choose suppliers similar to mobile phone service providers The logic is tempting, but over simplistic. The electricity (amendment) bill is basically anti people and does not look at root cause of power sector ailments but only treat the symptoms of problems.

Distribution and retail supply is the most critical link in the electricity market, which interfaces with the end customers and provides revenue for the entire value chain.
The UPA government had promised power to all by 2012 and now NDA Government has extended the time bar to 2019.There are 34 crore households which are yet to get power connection. If bill is passed in Parliament the tariff would increase by the addition of supply licensees and the financially bankrupt
Discoms would be left only to cater to subsidized consumers and people living below poverty line. It may be mentioned that The power utilities are already suffering a loss of more than 3.5 lakh crore of rupees. This could worsen the losses of the State owned Discoms.

The amendments aim at making fundamental changes to the distribution sector structure and organization. It is on the lines of existing system in the United Kingdom which has separate suppliers and electricity network providers. The above proposal was introduced in United Kingdom under ideal conditions and in contrast the conditions are totally different and adverse in the Indian scenario.

The separation of distribution business – content and carriage – involves
significant costs and may be difficult to reverse. There are risks associated with it
that need to be taken seriously. The issues of the ageing infrastructure of distribution network have been acknowledged for quite some time.
The private sector is interested in only profits by hook or crook. Last year on August 25 the major private sector players closed their thermal units of 8000 MW to force the Government to revise the tariff upward on pretext of increase in cost of imported coal. Under such circumstance how the round the clock supply to all consumers can is assured.

The proposed amendments would give financial benefit to the high end
consumers of 1 MW and above making the State DISCOMS to go into further
financial distress and make it impossible to give power to 80 million un-electrified
Government has introduced the Electricity (Amendment) bill 2014 in Parliament with full knowledge of facts that the experience gained over the years splitting of power distribution network has not yielded the desired results. Even the Standing Committee on Energy to whom bill was referred took views of only state power utilities and regulators .It has not bothered to consult biggest stake holders the power engineers.
The standing Committee presented its report to Lok sabha on May 7 with dissenting notes from Congress ,CPI CPM and others.
Congress has dubbed the electricity amendment bill as “anti-poor”, stating that its provisions would leave rural and lower middle-class consumers at the mercy of loss-making state agencies for power supply. The dissent note said the new system would prompt “cherry picking without social obligations” and sideline the poor.
“The presence of large number of suppliers… would lead them to categorize electricity consumers into ‘priority’ and ‘non-priority’ or ‘subsidized’ category. There would be limited electricity penetration in poorer, agrarian areas of our country which in turn would mean that people in rural areas, like our farmers and the poor, would end up bearing the brunt of this skewed policy,”
CPI M said in his dissent note that while the amendments focus on creation of a retail power market, the real issue is the infrastructure deficit. He added that with deficiencies in all aspects of the power sector, segregation of carriage and content will result in windfall gains for electricity suppliers and disastrous for the end consumer.

The main objective of the amendment seems to be to push the commercialization of electricity, opening up the distribution sector before the profit motive of corporate houses. The priorities of Government seems to be in favour of high income groups where people want 24X7 quality power supply without bothering for tariff. The Government is talking of two different tariffs one for common man and other for people willing to pay 50% extra during peak hours for uninterrupted power supply. The Government is revising the tariff policy leading to peak load tariff and normal tariff.
Power sector is facing serious challenges such as large scale financial losses, rising tariffs, deteriorating performance of existing plants, fuel availability and quality related concerns and poor quality of supply and service. The proposed amendments aim at making fundamental changes to the sector structure and organization, but it is not clear how these changes will help in tackling the issues mentioned above.The concept of multiple power suppliers will lead to total privatization of power supply in country.

The experience and effect of market power in a scarce market has not been considered in formulating the proposal. As India is energy starved nation, reducing price of power through competition is impractical. The multiple licensee system will help only “cherry picking” and the deterioration of the incumbent public sector licensee, which will be the only responsible for supplying electricity to the unprivileged common man.
This simply means nationalizing the losses and privatizing the profits.
The competition is possible only in a situation of surplus, not scarcity of electricity, which the country was facing. As per census 2011 figures, close to 45% of rural India lack access to electricity. More than 33% of Indian households are still have no access to electricity. Moreover, even in cities, households suffer on account of shortage of power. At present nearly 40 % population of country does not have access to power as they cannot afford power even at existing rates. Therefore giving multiple licenses of supply will lead to chaos, heavy losses of Discoms, endless litigations and sky level tariff hike for common people..
The practical impact of proposed amendments will be inability of the State Discoms to make investments for extending power supply to 80 million un-electrified households and making it impossible to achieve the Govt. of India objective/ target of 24×7 supply for all consumers by 2018-19
It is a well known fact that the stability of the power sector on a whole has gone down since the enactment of Electricity Act 2003, though there are achievements in some areas. From a common man’s view point, the electricity is fast becoming a costly affair going beyond his hold.
In the name of competition and efficiency in the supply of electricity with more than one supply licensee offering supply of electricity to consumers in the same area, separation of carriage and content in the distribution sector is being looked at. Multiple supply licensees at the same area of operation is aimed at retail competition thus to tide over the impractical proposal of multiple distribution licensees existing in Act 2003. Even though there is a dream of improving quality and reducing cost through market competition, the reality is different.
As per the amendment anybody applying for a licensee has the right to get a license and there is every chance of non-serious players to come in as licensee and collect security deposits and fly away. The amendment is silent on the mechanism of setting off the power flow between supply licensees and distribution licensee. Since incumbent licensee has the responsibility of serving power to every consumer as a last resort it has to formulate its power purchase plans. But it will fall in trouble due to black box strategies of other licensees.

Even though electricity is a matter on the concurrent list in the Constitution, the powers of the State Governments, which are already shackled to a large extent by virtue of Electricity Act 2003, are seen likely to be curtailed by the proposed amendments. This will severely affect the Centre –State relations which are against the vision of your good governance. In India, the situation in power sector, such as consumer mix, consumer spread, sources of generation, ownership pattern etc. are vastly different from states to states. The priorities and strategies of development of the states will be different and will also be having their own stake in deciding the structure of the sector, development strategies and Tariff design including decisions on subsidies and cross subsidies of Electricity. Hence making the policy decisions of Central Government as mandatory is against the federal set up of governance and is not proper.
The proposed system of separating out supply from wires business involves a foolproof and dispute free system of energy accounting and loss determination. Energy accounting and loss determination itself would make the proposed system unmanageable and full of disputes. An elaborate and computerized energy accounting and loss accounting systems are nowhere in existence and without these the commercial aspects of energy supply simply cannot be settled.


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