In a radical reform in the country’s power sector, a high-level advisory panel appointed by the NDA government is ready with a proposal that envisages the advent of multiple suppliers in the loss-laden distribution side.

The elimination of the territorial distinction that exists among electricity distribution companies in each state is part of the blueprint, which envisages multiple supply licencees on the consumer-end being able to compete with each other as in the telecom sector, and the retail consumer having the option to migrate from one supplier to another.

The proposal is being readied by an advisory panel headed by former power minister Suresh Prabhu, who was instrumental in bringing the last round of tangible reforms in the sector a decade ago. The panel is in the final process of consultations before firming up a cabinet note.

“The government has decided to break up the monopoly of the distribution companies,” said an official involved in the exercise. Within 12 months of the proposed amendment to the Electricity Act 2003 becoming a law, discoms will be broken into a wire company and an intermediate supply company. Multiple supply licences will be issued to applicants by the state regulators (SERCs) over the next few months, even as a state-owned supply company will continue to supply electricity in the intervening period.

The distribution wire business would remain with the incumbent distribution company and the business of retail supply to consumers would be opened up to multiple players, mostly private. This will usher in competition in retail supply, providing choice to the consumers.

The most crucial aspect of the reform is that old PPAs (power purchase agreements) would be distributed among the new supply licencees. This is fundamental to the success of the proposal, because the inherent advantage of cheaper electricity sources under PPAs signed in the past — power from newer projects tends to be more expensive while those from older projects is cheaper — has to be balanced out among supply licencees to ensure a level playing field for the new players.

The consumers would continue to be drawn to the state-owned supply company if it were to be vested with these PPAs, primarily as it would provide cheaper power. “The modalities of doing this are still being worked out,” said an officer involved in the exercise.

According to the plan, there is likely to be a nominal fee for getting supply licences, with auctioning unlikely to be the criterion for award of licences. To protect consumer interest, the SERCs will only prescribe a price cap, as done in the telecom sector initially.

While the proposal to segregate carriage and content was initiated during the UPA rule, the proposal to redistribute the old PPA basket is being seen as a contribution of the new advisory panel under Prabhu. The advantage of this is that it will entail private participation in the electricity supply business without any upfront privatisation of the infrastructure. There is unlikely to be immediate opposition from unions and the billing job will still be with the network wire company.

The proposed amendments are silent on the eventual status of the distribution wire company. It may evolve into a private company, stay as a government company or metamorphose into a joint venture company, depending on its performance. It will have assured return and its performance will be monitored by SERCs.

Industrial consumers having a load of over 1 MW will have to seek mandatory open access, which means they will have to seek market rates and move out of the regulated tariff regime. In effect, the proposal paves the way for promoters of generation projects to simply tie up with distribution-end suppliers and set up power projects, marking an end for the current tariff-based bidding process (Case I and Case II) for awarding power projects.

The two key grey areas pertain to the settlement of inter-se accounts between the competing supply licencees in a common area. Also, the need for the empowerment of State Load Dispatch Centre (SLDC) to control private companies, maintain grid discipline and arrange balancing power, is still being worked on, officials said.

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