After mooting the 'delicensing' of power distribution recently, the Centre appears to be having second thoughts on the idea after objections from some States. This might actually not be such a bad outcome. A move to open up the distribution sector in a big way must be preceded by more detailed consultation with stakeholders. There can be no denying that power sector reforms have made some progress in recent years, but the State-owned distribution sector, which accounts for 90 per cent of power distributed, is still hobbled by dues of over ₹1 lakh crore. This is not the least because of irrational tariffs and aggregate 'technical and commercial’ losses of over 24 per cent. The draft Electricity (Amendment) Act, 2022, marks an effort to clean up the distribution sector by enhancing open access provisions.

Under the present open access framework, large users wishing to bypass Discoms altogether to buy directly from the generators, can do so if they have a demand of at least 1 MW. Similarly, in cities such as Mumbai, smaller consumers can choose between Discoms. They can buy electricity from one licensed Discom by using another's network while paying wheeling and cross subsidy charges. In an effort to introduce further competition into this space, the Centre was considering the roll out all over the country, of a model of distribution where the carriage of electricity would be separated from its billing -- by introducing another intermediary between the Discom and the retail user. This is indeed in operation in parts of Maharashtra, Gujarat, Rajasthan, Odisha, Meghalaya, Tripura and Andhra Pradesh, with mixed results, as conceded by the NITI Aayog’s August 2021 report on power reforms. Yes, Delhi and Mumbai have done well as cities with homogenous and affluent populations, but these features may not be present across States. There have been contractual lapses in the operations of franchisees (such as Discoms not being paid their dues or tariffs becoming an area of contention), leading to litigation. The States are perhaps not far off the mark therefore, in apprehending chaos from this move. The Centre has done well to address States’ apprehensions over regulatory overreach, by revoking some of its terms on appointments to the State electricity regulatory bodies and it needs to engage with States to allay other apprehensions too.

There can be no denying that open access, particularly through renewables, should be promoted. But it should be done with an eye on grid integrity and quality of supply. Allowing a multiplicity of generators, distributors and their franchisees all of a sudden without the regulatory capacity to accompany it can be a recipe for chaos. Instead, the focus should be first on implementing power infrastructure reforms under the ₹3.05 lakh crore reforms package unveiled in the 2021-22 Budget. At the second stage, the open access threshold of 1 MW can be reduced, as has been done for green power access, so that more industrial and commercial users can buy at beneficial rates on the spot exchanges. However, for their inevitable reliance on Discom supplies, they must be prepared for a lock-in of a year, so that the Discoms can plan their business. Finally, power generation and transmission are the domain of the Centre, while its distribution lies with the States. Though States argue for autonomy on policies, it is an indisputable fact that they have grossly mismanaged Discoms so far and have taken frequent recourse to the Centre’s funding support. Both sides must therefore proceed with a willingness to take the middle ground.

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