Bulk power buyers can choose supplier

Consumers will have to pay a surcharge to shift

Bulk electricity users may soon have the option of changing their power distribution company on payment of a surcharge.

A proposal mooted by a group of state regulators wants a formula based on 'avoided cost' and suggests compensation be paid to a distribution company if a bulk consumer shifts to another company.

The compensation would have to be paid by the distribution company or discom to which the consumer proposes to shift.

The proposal mooted for public debate suggests that the difference between the average tariff of a category of consumers and the cost avoided by the discom by buying less power to supply, will provide a measure of the surcharge.

The move would enable open access in distribution for consumers who use 1 megawatt or more of electricity. The Electricity Act stipulates that a surcharge for the current level of cross-subsidy has to be specified by the state regulator and that consumers with a load of 1 Mw and above should have the option of moving to a supplier of their choice.

The regulator will be required to estimate the projected capacity that is likely to move away due to open access. The migration will result in a discom having to purchase less power from marginal sources of supply.

Hence, the weighted marginal cost of power purchase from such sources would be considered as 'avoided cost' for variable components of power purchase.

Other charges, like applicable fixed charges of power purchase and applicable transmission and wheeling charges, will be added to the 'avoided cost' to arrive at the total cost of supply.

The difference between the average realisation of a category and the 'avoided cost' of supply will be the cross-subsidy surcharge amount.

The group considered four approaches to the surcharge issue. Average cost, embedded cost and marginal cost were found inappropriate. The 'avoided cost' concept was found suitable.

The group also said that in view of the generation shortage, migration was not likely to result in any generation capacity getting stranded.

In case of intra-state transmission lines and distribution systems, assets will continue to be used by the open access consumer by paying wheeling charges even after migration.

If a situation of stranded generation or intra-state transmission and distribution assets does arise, the state regulator will have to settle the issue on a case-to-case basis.

Power to the consumer

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• State power regulators have suggested that consumers using 1Mw or more of electricity be allowed to change their distribution company, in accordance with provisions of the Electricity Act
• The consumer will have to pay a surcharge. In addition, the distribution company to which the consumer proposes to shift will have to pay a compensation to the erstwhile distributor
• The compensation is to be based on 'avoided cost' "" the difference between the average tariff of a category of consumers and the cost avoided by the discom by buying less power to supply