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In a move that could finally open up the power market in India, the power ministry has floated a Cabinet note to resolve a contentious issue in implementing open access that allows large users — typically consuming 1 Mw and above — to choose their electricity supplier. The issue relates to an earlier proposal by the Planning Commission to set aside a portion of the government’s quota of unallocated power for open access. The proposal was opposed by the Ministry of Power earlier this year on fear that it might lose control over allocations.

Miffed at the opposition from the ministry, the Planning Commission had sought the intervention of the Prime Minister’s Office (PMO). Earlier this year, Prime Minister Manmohan Singh had asked the Cabinet Committee on Economic Affairs (CCEA) to resolve the issue. “The ministry of power has now partially agreed with it. They have floated a Cabinet note on this. It has gone to various ministries for comments,” said Planning Commission Member B K Chaturvedi.

“This matter is going to the Cabinet shortly, for its consideration of measures that could be taken,” he added.

The power ministry has discretion in the allocation of 15 per cent of the 300 billion units of power produced by Central generating stations annually. This quantum of unallocated power is generally used by the government to bridge the demand-supply gap in times when a state is reeling under huge deficits of electricity.

The proposal of setting aside one-fourth of this 15 per cent for direct sale to open access consumers was one of the recommendations made by the inter-ministerial task force on ‘Measures for Operationalising Open Access in Power Sector’, chaired by Chaturvedi.

The members of the task force included RBI Governor and former finance secretary D Subbarao, former power secretary Anil Razdan, principal adviser to deputy chairman of the Planning Commission Gajendra Haldea and CEA Chairman Rakesh Nath.

The Electricity Act of 2003 had assigned the deadline of January 27, 2009, for the grant of open access to all consumers with electricity requirement of above 1 Mw. The task force, which submitted its report in January this year, had said that no consumer in any state had availed open access so far and the “facility has been availed of only by captive producers and that, too, only marginally.”

Applications seeking open access for over 25,700 Mw have been submitted till date in the country. Actual implementation has, however, been as low as 7,400 Mw, and that too largely for captive power, according to the latest data obtained from CERC.

Large-scale commercial consumers, like restaurant owners in Mumbai, have already started choosing their distribution company. They recently opted for buying power from Tata Power instead of Reliance Infra due to cheaper rates.

One of the stumbling blocks for open access is the high cross-subsidy surcharge — the amount paid by a consumer switching his electricity supplier to his existing supplier to offset the loss incurred by the exiting supplier on this account.

“The state regulators have fixed cross-subsidy surcharges which are so high that it becomes difficult for consumers to change their supplier,” said a senior CERC official. There are divergent views also on whether setting aside some power for sale through open access is the solution to the problem.

“The quota is itself insufficient. The government should look at more futuristic provisions like keeping power from up to 15 per cent of the projects which are bid out under Case-II (like UMPPs) for trade on merchant basis,” said Shubhranshu Patnaik, executive director, PricewaterhouseCoopers.

Setting strict penalties for defaulting states is another solution, according to other experts. “If the government wants to enforce open access, it should come out with a mechanism under which those states which do not allow open access of power could be penalised through refusal of their share of unallocated quota. And even their base power from central stations could be curtailed,” said Kuljit Singh, head of transaction advisory services at Ernst & Young.


Source - Business Standard