No ‘power’ of choice for consumers

No ‘power’ of choice for consumers

Context

Monopoly in power supply

The issue

In the auctions, where the companies who offer to sell electricity at the least prices are the winners, companies quotewell under Rs. 3 a unit of electricity in some auctions

• But consumer is paying more than Rs. 6 per unit and the factories pay even more upto Rs.12 even.

The question

Why are they not passing on the benefit to the consumers?

TheState Monopoly

• Customers pay for State’s inefficiencies: State governments, through the electricity distribution companies (discoms) owned by them, are still a monopoly, and exhibit monopolistic tendencies — their instinct is to make their customers pay for their inefficiencies
• Controlling direct business with the suppliers: A large consumer of power can directly purchase power from a supplier, by-passing over the State discom but this has proven difficult as the owner of the discom, viz., the State government, has control over such direct transactions
• Control via State Load Dispatch Centre: State governments use the respective State Load Dispatch Centre (which routes the power) as the instrument of control

Misuse of Section 11 of the Electricity Act:

• This section allows them to force a power producer in that State not to supply outside the borders
• The provision was meant for use in rare circumstances of emergency-like power shortage, but many States have taken liberties with the interpretation.

Controlling the Free Market or the Open Access (OA) via Open Access Charges

Increasing Cross-subsidy surcharge (CSS)

• This is a surcharge that a discom levies on a customer for meeting the costs of free or subsidised power to some sections of the society.
• Ideally, the costs of such subsidies should come from the State government’s own funds, but other customers are made to pay for it.
• The Electricity Act allows CSS, but the idea clearly was that the charge shall be progressively reduced and eliminated but instead, the CSS is only increasing

Additional Surcharge

• This is meant to compensate discoms for the fixed cost of their long-term contracted capacity, which is stranded as a result of consumers moving to Open Access (OA)
• Customers leaving them has adverse financial implications, at a time when they are hard up on cash

National Tariff Policy of 2016against the CSS

In Section 8.3, it says “direct subsidy is a better way to support the poorer categories of consumers than the mechanism of cross subsidizing the tariff across the board.

Other Factors

• Centre-State mismatch

While the Centre wants a vibrant, 24-by-7 market, the States are more concerned about their immediate finances and electoral issues.

• Draft of the New Electricity act is gathering dust

On top of all this is the proposed New Electricity Act which proposes to separate “carrier and content”, meaning the transmission lines will be like tolled highways for use by anybody, while the power itself could be supplied by anybody, so that the consumer will have a choice to switch seamlessly between suppliers