scorecardYou will be able to swap your power distributor but you might have to pay to port
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You will be able to swap your power distributor but you might have to pay to port

You will be able to swap your power distributor but you might have to pay to port
Business2 min read
  • Finance Minister Nirmala Sitharaman said that the power distribution sector is mired in monopoly, and there is a need to provide choice to consumers.
  • Currently, in most areas, only one discom can supply electricity.
  • India’s discoms include private players like Reliance Power, Adani Electricity, Tata Power, as well as government players like NTPC.
Finance Minister Nirmala Sitharaman’s move to bring more players into the power distribution sector might look like consumers will be spoilt for choice. In reality, it might not change anything unless large-scale regulatory changes are brought about.

In her Budget speech, she said that power distribution companies in India currently are monopolies, whether they are government owned or private. “A framework will be put in place to give consumers alternatives to choose from among more than one distribution company,” said Sitharaman.

The concept of allowing more than one distribution company to supply power under for an area has been tried in a few cities including Mumbai. Most of these experiences have not been rewarding neither for consumers nor distributors nor the local electricity regulatory bodies who have been caught between warring players.

Pay to port

Debashish Mishra, partner at Deloitte said that the current Electricity Act 2003 allows for a choice of supplier to the consumer. But for that, consumers will have to pay a cross subsidy surcharge and additional surcharge to the existing supplier. It means they have to pay to port.

“In Mumbai, one can choose between suppliers, but with these regulatory charges, it becomes unviable for a consumer to migrate. Also, existing suppliers would always want regulatory protection against incoming suppliers cherry picking high paying customers,” he said.

The new entrant could always pick those consumers who pay a higher amount per unit, for example commercial establishments. That would tilt the delicate balance of a complicated system of cross subsidies that have been in place for years now. Basically, those who consume less than 300 units a month are charged less than the others, even within the residential category.

“Retail competition was envisaged in the amendment to the Electricity Act 2003 and the subject has been debated for a while. Challenge is high levels of cross subsidies involved in the distribution segment where commercial and industrial consumers substantially subsidise agricultural, rural, residential consumers,” said Mishra.

In spite of the many issues, the sector has attracted large private groups like Adanis and Tatas. In addition, India’s largest power generator NTPC is known to have joined hands with yet another state-owned company Power Grid for a distribution venture. That could bring in more investment into the sector.

“The proposal to monetize transmission assets will expedite infrastructure creation and even channel in more funds for further investment. This may also open operation and maintenance in these assets to private players,” said N Venu, Managing Director, Hitachi ABB Power Grids in India.