The government is likely to drop amendments to the Electricity Act for Discom delicensing through separating carriage and content. The amendments to the Act are expected to be introduced in Parliament during the upcoming monsoon session.
Sources said amendments on discom delicensing, which would infuse competition in the distribution sector and offer more choices to consumers, may be dropped largely due to operational issues and protests by the States.
States such as West Bengal and Tamil Nadu had complained about the Centre’s move, stating that this would lead to far-reaching detrimental implications for State Discoms. While generation and transmission are with the centre, distribution is the purview of the States.
In the draft electricity amendment bill (2021), the Power Ministry proposed the delicensing of Discoms in an effort to reduce entry barriers. It would allow multiple distribution firms to operate, thereby infusing competition and offering choice to consumers.
A senior State government official said the issue of separation of carriage and content has been doing the rounds since 2013. Delicensing could not work out largely due to State protests and operational roadblocks.
“For instance, many stakeholders said that regulators (CERC & SERC) are not strong enough to deal with issues of regulatory handling of multiple players in the distribution matrix. It could lead to chaos. Another is on power purchase agreements (PPAs). At present, allocation is State-wise. So, a power station may be supplying power to four States through PPA allocation. But when delicensing happens, the contracts would have to be signed with multiple discoms. This could lead to legal issues,” the official added.
Another state government official said that when content and carriage are separated, private firms may start cherry picking consumers. So they may only give supply to customers who pay or may opt for areas where payment is good.
“So low-paying areas will feel the brunt, which the government cannot afford. Here too, the role of the regulator becomes important in enforcing the laws. There was not much clarity on how this regulatory issue should be handled,” he added.
In a report in August 2021, NITI Aayog said the separation of content (retail electricity) and carriage (wires) is the proposed means of creating retail customer choice in India.
“Once this separation is achieved, there could be multiple firms (distribution companies) supplying power through the same grid infrastructure. Consumers can choose the supplier who provides them with the best quality–cost combination. However, this reform can be challenging to achieve, and should be accompanied by careful market design,” it added.
The report pointed out that the reform can be challenging to get right and should be accompanied by careful market design. The feasibility of competition will depend on the size of market, nature of demand, efficiency of the incumbent, potential for growth, etc, it added.
For instance, NITI Aayog said in Delhi that factors such as financial capacity of the private investor, homogeneity of customer mix, and their relatively higher capacity to pay, were all relevant to the success of the licensee model.