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Powerless regulators PDF Print E-mail
Thursday, 21 July 2011 00:00
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On August 15, if things go to plan, suburban Mumbaikars will have a choice as to whom they have to buy electricity from, instead of just Reliance Infrastructure—apart from Reliance Infra, three more players are to be given distribution licences. Among the hopefuls are companies like Lanco, Torrent Power, Indiabulls and even the state-owned Maharashtra State Electricity Distribution Company. Given there are few other cities in the country where such choice exists—a choice envisaged as part of the reforms process as enunciated by the Electricity Act of 2003—this is a reason to celebrate.

Except, as FE reported on Wednesday, the move may not have quite the impact it is supposed to have. The reason is simple. What the Maharashtra Electricity Regulatory Commission (MERC) is planning is to tell each new player to build its own parallel distribution network. So if, for the sake of argument, FE wants to buy power from Lanco now, Lanco will have to put a new power line to FE’s office. That will add to costs and may make it unviable for FE to shift suppliers. While a large buyer may still find it viable to shift suppliers, that certainly can’t hold true at the level of individual houses. The solution to this that the Electricity Act 2003 envisaged is what’s called open access. Under this, the new player can use the lines of the old player in return for a payment that is determined by the regulator. For reasons best known to it, even though the law is on its side, neither MERC nor other state regulators have implemented open access at the retail level—it has been done for transmitting power across state boundaries. In which case, when the new licences finally get issued, it does seem unlikely that they’ll have any major impact on competition. Indeed, even before the issue of the costs of the new distribution lines comes up, there is the issue of permissions. Who’s to guarantee the new players, all three of them, will get the necessary permissions to lay three sets of power lines to the residence of potential buyers? In the telecom sector, to cite an interesting parallel, the regulator has not been able to break this ‘last mile’ monopoly since BSNL owns most of the telephone cables going into subscribers’ homes—this has ensured India’s broadband Internet penetration remains low. The same sad story is getting repeated in the power sector.

 

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