Power minister Piyush Goyal said on 19-07-2016 he will reach out to states to seek their support for a proposed amendment in the 2003 Electricity Act that would allow multiple power delivery utilities to compete in the same area, thus improving the quality of services and driving down power bills.
As per the proposed change, a power distribution company which already has supply network in a region will allow competing businesses in electricity retailing to use its network for a user-fee so that all the players compete for the same customer. While the infrastructure owner will get a return for their wire business as decided by the power regulator, competition will determine the price of power sold to consumers.
States that fear their electricity market is not mature enough for such competition and whose public sector utilities are not confident of competing with private players, have voiced protests, Goyal said, adding that he will try to build a consensus.
"All the reforms we have brought in are with the consensus of states. We will talk to them. I look forward to moving an amendment (to the Act) in the next (winter) session of Parliament which will allow consumers to choose their electricity supplier," said Goyal.
The government, which has been increasingly relying on competitive bidding for allocating natural resources and awarding power projects, wants to introduce more competition in the power distribution sector, where competition is low compared to the rest of the electricity value chain. Although the law at present allows parallel licensees in the same area, different players setting up their own distribution infrastructure will only add to the cost of supplying power, which is passed on to the consumer. The intention now is to separate the business of providing power supply infrastructure (wire ownership) from that of supplying electricity.
"Competition will reduce the tariff and consumers will get better quality service," said Goyal. To ensure that all distribution companies have a level playing field, the electricity regulator will only fix a ceiling price for power, not separate tariff for individual players.
Experts said that competition is likely to prompt suppliers to cut their margins and make an extra effort to improve efficiency and provide a quality service.
"States utilities must realise that they face active competition already, from growing supply of natural gas, coal-based captive power plants, and renewable energy projects, which are offering cheaper power than their regulated tariffs. The proposed separation of distribution and supply will help industrial and commercial consumers reduce the cost of electricity, and eventually be more competitive in a global market," said Kameswara Rao, leader of energy utilities and mining at PricewaterhouseCoopers in India.
Rao said that eventually, it is in the state government's interest to focus only on distribution as it earns a regulated return and suffers no losses that have to be bailed out by the tax payers. In most developed nations, supply competition, while not easy to implement, has benefitted consumers in terms of lower tariffs and better services, he said.
The highly regulated nature of the power distribution business and power theft have affected the financial health of companies in this area. In the case of state power utilities, whose accumulated debt is being taken over by respective state governments under the Ujwal Discom Assurance Yojna (UDAY), there are some performance targets to cut power theft and improve bill collection. As per this, if a public sector power distributor does not turn around in two years, their losses will be counted as part of the fiscal deficit of the respective state governments from 2018-19. At present, UDAY is not available for private distribution companies.