The MERC initiated the process of issuing power distribution licenses for the 364 sq km suburban area that gets electricity from Reliance Infrastructure (RInfra) as the company's permit expires in August.
While the MERC sought the opinion of additional solicitor general of India Parag Tripathi, the Central Electricity Regulatory Commission sought Subramanium's opinion on behalf of all state regulators on whether it can grant license to two or more firms within the same area.
In his reply on May 14, Subramanium said that each distribution licensee must supply electricity through its own network and that consumers using open access (meaning, the network of another company) will have to pay the cross subsidy surcharge mandated under the Electricity Act, 2003.
"Any distributor has a universal service obligation, as mandated by the law, to give supply to a consumer in 30 days or lay its own network in one year and then give connection," said an industry expert, requesting anonymity because he's attached to the MERC. "New companies will need a lot of money, at least Rs 15,000 crore, to lay down a network in the congested suburbs. The surcharge and the cost of the new network will add to a consumer's monthly electricity bill."
Subramanium has also pointed out that the MERC cannot separate the distribution and supply business. This means the company that owns the network will get license for supply as well.
Meanwhile, in his note issued on May 11, Tripathi has asked the MERC to approach the government to get the law amended instead of ignoring its anomalies and ambiguity with regards to distribution areas, cross subsidy and network issues. This means he wants the MERC to avoid further litigation by aggrieved parties. He also said: "There is no provision for renewal of license but the new license to the existing licensee can be given for the same area as in the existing license."
Why has RInfra allowed Tata Power to use its suburban network for consumers who have migrated from RInfra to Tata Power? "The decision was based purely on the company's social obligation," RInfra's business head RR Mehta said, refusing to comment on the legal development.
Sandeep Ohri, the MERC-approved consumer representative, said the regulatory body would have to come up with an out-of-the-box solution so that consumers are not denied their right to choose a cheaper power supplier. He suggested that the MERC split the RInfra area into smaller segments. "That will help the respective licensees as they will need less money and time to set up a new network. Or the MERC could advise RInfra to sell its network to the new companies," Ohri said.
VP Raja, MERC chairman, did not respond to our query.