Policy Models for Distribution Reforms
‘Multiple Licensing Arrangement’
Presented by:
R.R. Mehta
President- Reliance Infrastructure Limited
Agenda

Regulatory and Policy Support for Competition

Policy Model for Distribution Reform

International Experience

Conclusion
Confidential
Slide
2
Regulatory and Policy Support for Competition
Legal & Regulatory Support
 Section 2(17): "distribution licensee" means a licensee authorised to operate and
maintain a distribution system for supplying electricity to the consumers in his
area of supply;
 Section 2(47): “open access” means the non-discriminatory provision for the use
of transmission lines or distribution system or associated facilities with such lines
or system by any licensee or consumer or a person engaged in generation in
accordance with the regulations specified by the Appropriate Commission;
Consumers served by Distribution Licensee (Wire + Retail) or Open Access
Confidential
Slide
3
Policy Models for Distribution Reform

Status of ‘Parallel Distribution Licensing’ in EA 03
Section
14(6th
Proviso):
………………………………………………………………………...
………………………………………...…………..……
Provided also that the Appropriate Commission may grant a licence to two or more
persons for distribution of electricity through their own distribution system within the same
area, subject to the conditions that the applicant for grant of licence within the same area shall,
without prejudice to the other conditions or requirements under this Act, comply with the
additional requirements relating to the capital adequacy, creditworthiness, or code of conduct as
may be prescribed by the Central Government, and no such applicant, who complies with all the
requirements for grant of licence, shall be refused grant of licence on the ground that there
already exists a licensee in the same area for the same purpose
More than one Licensee, however, each licensee to supply through its own
network
Confidential
Slide
4
Regulatory and Policy Support for Competition
Legal & Regulatory Support
 Section 43
“(1) Save as otherwise provided in this Act, every distribution licensee, shall, on
an application by the owner or occupier of any premises, give supply of electricity
to such premises, within one month after receipt of the application requiring such
supply……….
(3) If a distribution licensee fails to supply the electricity within the period
specified in sub-section (1), he shall be liable to a penalty which may extend to
one thousand rupees for each day of default…”
All licensees in an area obligated to supply on request (USO)
Confidential
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5
Policy Models for Distribution Reform

Judgments strengthening ‘Open Access’
Appeal No 132 of 2011
……
(B)Various provisions of the 2003 Act as well as 1910 Act required a distribution licensee to
lay down its own distribution network for meeting the universal service obligation to
consumers. TPC, the distribution licensee who had been granted license in the year 1907 and
who failed to lay its own distribution network cannot now claim right over the distribution
network of other licensee to meet its universal service obligations.
(C) The only method to use the network of the Distribution Licensee namely RInfra, by the
another Distribution Licensee namely TPC, is only through open access under Section 42 of the
Act. Section 42(3) envisages the existence of parallel distribution licensee and it is equally
applicable in this case where a consumer connected to the network of one distribution licensee
i.e. RInfra, takes power from other distribution licensee i.e. TPC in the same area of supply.
(D) The State Commission does not have any plenary power to permit something which is not
permitted within the Act itself. In this case, there is specific provision for Open Access to allow
the TPC to supply to the change over consumers by using the network of RInfra. Hence, the
question of invoking plenary powers does not arise
As held in RInfra – TPC matter : TPC usage of RInfra network under Open
Access as an interim step
Confidential
Slide
6
Policy Models for Distribution Reform
Objective
Options Available
Policy Models
Single Wire (Regulated)
- Multi Retailer (un-regulated)
Wire- Retail Separation
(Open Access)
Single Wire (Regulated) –
1 Retailer (Regulated),
Multi retailer (un-regulated)
Competition in
Distribution
• Choice to Consumer
• Cheaper and Reliable
electricity supply
Confidential
Multiple Licenses
(Wire + Retail)
Multiple license in Common Area
of Supply
e.g. Mumbai
Slide
7
Policy Models for Distribution Reform
Objective
Options Available
Policy Models
Single Wire (Regulated)
- Multi Retailer (un-regulated)
Wire- Retail Separation
(Open Access)
Single Wire (Regulated) –
1 Retailer (Regulated),
Multi retailer (un-regulated)
Competition in
Distribution
• Choice to Consumer
• Cheaper and Reliable
electricity supply
Confidential
Multiple Licenses
(Wire + Retail)
Multiple license in Common Area
of Supply
e.g. Mumbai
Slide
8
Policy Models for Distribution Reform

Multiple Licensee (Wire + Retail)’
Benefits
Issues
• How to recover the Stranded Cost of assets and
contracts?
• True Implementation of EA
03
• Freedom to Consumes for
choosing their electricity
service provider
• Encouraging Competition in
Distribution
• Doesn’t it leads to duplication of costly and limited
resources?
• Whether same consumers need to pay twice for
similar asset made to serve similar purpose?
• Whether past liabilities of consumers post shift over
to other licensee eliminates?
• How to ensure financial stability of licensees in
political sensitive, socio-economic and non-periodic
tariff design framework?
• Elimination of Subsidy/Cross-subsidy
Competition enabled through Duplication of Resources – Uneconomic & embedded
Implementation Constraints
Confidential
Slide
9
Policy Models for Distribution Reform
Objective
Options Available
Policy Models
Single Wire (Regulated)
- Multi Retailer (un-regulated)
Wire- Retail Separation
(Open Access)
Single Wire (Regulated) –
1 Retailer (Regulated),
Multi retailer (un-regulated)
Competition in
Distribution
• Choice to Consumer
• Cheaper and Reliable
electricity supply
Confidential
Multiple Licenses
(Wire + Retail)
Multiple license in Common Area
of Supply
e.g. Mumbai
Slide
10
Policy Models for Distribution Reform

‘Open Access with Wire –Retail Separation’
Benefits
Issues
Ensure Non-discrimination in
access to required Infrastructure
• Requires unbundling of costs and tariffs for network
services
• Requires
further
managerial
and
financial
segregation of network and retail business
Promote Balancing Market and PX
• Recognise electricity transaction follow electrical
rather than boundary
• Initiate with administered market and then gradually
move to free market
Promote Necessary Infrastructure
development
• Develop infrastructure to alleviate long-run
constraints
• Ensure flexibility in transmission capacity and tariff
Support a rational and viable
Multiple Supply model
• Address the issue of stranded cost and asset
• Extent of “USO”
Open Access creates Market and enables Choice to Consumer through Competition, the need
is to address the issues
Confidential
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11
Policy Models for Distribution Reform

‘Open Access with Wire –Retail Separation’
Issues - Recurring
Consumer Mix
Cross Subsidy
• EA 03 mandates for USO (i.e. choice of
consumer not available with licensees)
• Skewed Consumer mix due to
dominant
agricultural,
domestic
consumer
• Consumer Mix with varying affordability
to pay
• Tariff structure itself promotes crosssubsidisation
• Mandate of EA 03 and TP not yet
realised to eliminate or reduce
• Cross subsidy will prevail till Cost of
Supply tariff approach is not followed
in practice
Recommendations
• 1 Wire, 1-Default Retailer (to avoid cost burden on lower end
consumer) and multiple retailer (operating as deregulated market)
• Subsidy support to regulated market either through government or
through adequate CSS from deregulated market
Confidential
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12
Policy Models for Distribution Reform

‘Open Access with Wire –Retail Separation’
Issues – One Time
• Past Revenue Gaps (Regulatory Assets)
• Stranded Power Purchase Contracts
• Transfer Scheme for allocation of assets and liabilities
between wires and retail
Recommendations
• Defining a Charge to be recovered from all consumers of wire
licensee
• Capacity not absorbed by other retailers to be recovered by
way of Additional Surcharge from Contestable consumers
• Appropriate Transfer scheme to be defined
Confidential
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13
Policy Models for Distribution Reform

Distribution Reform through ‘Open Access with Wire –Retail Separation’
Phase I: Institutional Framework
• Unbundling retail –wire functions with distinct
licensing arrangement
• Identification of
contestable market
Contestable
and
Non-
• Mechanism of voltage and category wise loss
assessment
• Responsibility allocation of technical losses to
wire operator and commercial losses to retailers
• Mechanism to allocate the financial losses
among wire and retail
Phase I:
Development of
Institutional
Framework
• Infrastructure strengthening in form of Advanced
metering and site identified technical loss
correction
• USO applicability to retailers
Confidential
Slide
14
Policy Models for Distribution Reform

‘Open Access with Wire –Retail Separation’
Phase II: Introduction of Competition in
Retail
• Ownership transfer and ring-fenced arrangement
between wire and retail
• Multi-retailers in contestable market to operate
on commercial principles under non-regulated
atmosphere
Phase II:
Introduction of • Default retailer in identified category and wire
Competition in
operator to operate under regulated atmosphere
Retail
• SERCs to ensure adequate, transparent and
cost-reflective tariff (i.e. including OA Charges)
to regulated entities viz., default retailer
• Allocation of PPA among retailers post meeting
requirement of regulated default retailer
• Choice based retailing to be discouraged
Confidential
Slide
15
International Experience

International Experience in Retail Competition
Model A
Business
Model
Competitive
Retailer
Distributor
(incl.
default
retailer)
Model B
Retailer for
all market
Distributor
(only wires)
Countries
Portugal
Italy
Spain
Great Britain
Germany
Belgium
Comments
Different Leadership
possibilities of overall
retail business
Ring-fenced Business
with no overlapping of
rights and
responsibilities
Model C
Distributor
(Wire and Retailer for all
market
Germany (small distributors)
Italy (small distributors)
Pre-competitive scenario
for almost all countries
Source: Mckinsey Presentation on Distribution Reforms Options
Confidential
Slide
16
International Experience

International Experience in Retail Competition: Australia
First Tier
Retailers
Distribution
and Retail
Supply in
each State
Second Tier
Retailers
Confidential
• Attached to Distribution business
with geographical monopoly in that
state
• They can sell throughout state
irrespective of consumer location
• Retail business is ring –fenced
from distribution business
• Standalone
businesses
not
attached to distribution business
• They can sell throughout state
irrespective of consumer location
• They may be first-tier retailer in
other state
• Retail Market is partly
competitive and partly
operate on Franchise
basis
• In
competitive
retail
market retailer compete
to
 Large customer preferring
not to reach wholesale
market
 Small customer opting out
their choice of supply from
First tier retailer
• In NEM operated states,
first retailers can sell to
all consumers at prices
controlled by Regulator
Slide
17
International Experience

International Experience in Retail Competition: New Zealand
Line
Business
• 29 Line companies own the local
networks
and
operate
as
monopolies and all connected to
National Grid
• Line companies sell their line
services to retailers who manage
electricity supply to end consumers
• Network operators are subject to
targeted price control regime
Supply
Business
• Complete
contestable
retail
segment and no USO
• Extended deregulated retail market
• Regulator’s role limited to providing
arrangements for the protection of
consumers,
as
well
as
administering retail market rules
Distribution
Business
Confidential
• Common ownership of
distribution and either of
retailing and generating
business is prohibited
• Extent
of
retail
competition
varies
across
the
country,
customers have a choice
of retailers
• Retail tariffs are not
subject to price control
• Free web-based tools
are also available to help
residential users to shop
around
Slide
18
International Experience

International Experience in Retail Competition: United Kingdom
Private
Electricity
Supplier
Confidential
Interconnector
• They provide Overhead lines and
under sea lines connecting the
transmission networks in different
countries
Distribution
Network
Owner
• Natural Monopoly and licensed
activity
• Prevented
from
supplying
electricity to consumers
• Regulated through 5 year control
periods on PBR principles
Supply
• Retail market opened in stages for
large, medium users and for
residential users
• Customers free to choose supplier
• Competition in metering services
• Regulatory
office
of
OFGEM have Market
monitoring role
• Statutory
duty
on
Distribution
Network
Owner to connect any
customer
requiring
electricity
within
a
defined area, and to
maintain that connection
• DNO recovers charges
for system, connection
and balancing
Slide
19
Conclusion
Licenses
–

Multiple Combined
Implementation
Uneconomic
and
Constraints
in

Wire-Retail separation essential requirement for Competition and
Consumer Choice
 Single-Wire and Multiple Retail (Open Access)
Confidential
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