Some light, hopefully

The proposal by some state electricity regulators to allow bulk buyers (who use more than 1 MW) to move to a supplier of their choice is a welcome one since, as this newspaper has consistently argued, "open access" has led to a decline in consumer tariffs wherever it has been introduced.

The move by the regulators is also in keeping with the obligations under the Electricity Act which mandated such open access within a fixed time frame.

Indeed, there is a case for regulators moving faster and allowing 'open access' even for users with lower demand. Right now, with just one supplier in most markets, whether it is a state electricity board or a private company, pricing of electricity is a monopoly operation with some controls exercised by state-level regulators.

What is proposed is that if large buyers wish to move out to a new supplier, they will have to pay a surcharge to the original supplier/distributor.

This has been done primarily to protect incumbent state electricity boards and the private companies that have taken on their obligations""such bodies supply power at huge subsidies to households/farmers and will lose out if high-value customers stop buying power from them.

The surcharge is meant to compensate them somewhat for the loss, and yet make it viable for large buyers to also lower their costs""in other words, the surcharge has to be fixed in such a way that the overall cost for the buyer (even after paying the surcharge) has to be lower than what he/she was paying to the original seller.

Readers would, however, be advised to hold the champagne just yet, since such moves have been made in the past as well, and have come to naught.

In the case of Indal, the Kerala regulator allowed open access to the firm once it threatened to move out of the state due to very expensive electricity costs. However, when the surcharge and other tariffs were fixed by the regulator, these were so high that it became prohibitive for Indal to think of switching suppliers!

Even more tricky is the issue of transmission of such power if a bulk buyer decides to switch suppliers: if company A decides to stop buying power from company B and move to company C instead, it can't do so if company C is not allowed to carry power on the existing transmission/distribution lines that lead to company A's premises.

While seven or eight companies have got licences for power trading, most complain of not being allowed to access transmission corridors to carry their electricity, usually because state regulators don't wish to hurt the SEBs who stand to lose high value clients if this is done.

Indeed, 17 months after the Electricity Act was passed, the government still hasn't constituted an appellate tribunal to settle such complaints of users.

In the ultimate analysis, therefore, no progress can be expected unless a solution is found to the mounting losses of state electricity boards.

That means charging consumers rational tariffs as well as curbing rampant theft""if the losses don't come down, the surcharge fixed will generally tend to be so high that it will prevent buyers from switching suppliers/distributors.