Multiple Distribution Licensing
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Contents • Legal provisions • Typical Case • Issues
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Legal Provisions …..1/2 Act Provisions: Section 2(38) “ licence” means a licence granted under section 14 Section 2(39) “ licensee” means a person who has been granted a licence under section 14; 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(19) "distribution system" means the system of wires and associated facilities between the delivery points on the transmission lines or the generating station connection and the point of connection to the installation of the consumers;
Section 14 (Grant of licence): “The Appropriate Commission may, on an application made to it under section 15, grant a licence to any person – (b) to distribute electricity as a distribution licensee; or
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Legal Provisions …..2/2 Section 14 (Grant of licence): Sixth Provisio “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, credit-worthiness, 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:”
Thus it can be seen from the above provisions of the Act that Parallel Distribution Licensee means, two or more persons who has been granted a licence by the Appropriate Commission for distribution of electricity through their own distribution system within the same area.
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Merits True implementation of the Act No monopoly of one licensee Choice to the Consumers Benefits of competition ( Tariff reduction and better service)
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Typical case ..1/3
RInfra
TPC
BEST
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Typical case ..2/3 This matter was started prior to the Electricity Act 2003, with the dispute between TPC-D and M/s BSES( Predecessor of Rinfra-D). M/s BSES had filed a petition dated 23.7.2002 (Case No 14 of 2002) before MERC complaining of alleged encroachment by TPC-D within its area of supply and contended that TPC-D is licensed to supply electricity only in bulk quantity. According to the license conditions, they have no right to supply electricity to retail consumers falling in the BSES area of operation, and they should be restrained from supplying and distributing electricity directly to the consumers of M/s BSES. TPC-D contended before MERC that owing to the four different licenses all granted in favor of TPC-D before the EA 03 came into force, they were entitled to sell, supply and distribute electricity in bulk as well as in retail. While disposing the said petition, MERC retrained TPC-D from offering new connections to new consumers with energy requirements below 1000kVA. From this Order dtd 10-10-2002 of MERC, two separate Appeals were preferred before the APTEL one by TPC-D(Appeal No 43 of 2005) and other by Rinfra-D(Appeal No 31 of 2005). 7
Typical case ..3/3 Both this appeals were disposed of by Hon’ble APTEL by common Judgment on 22.05.2006 and it was held that TPC-D had not been granted license to undertake retail distribution of electricity in the area of RInfra-D and could only undertake bulk supply . Aggrieved with this Judgment of APTEL, TPC-D filed Civil Appeal no 2898 of 2006 before Hon’ble Supreme Court of India. The Hon’ble Supreme Court of India, in its Judgment dated 8th July 2008, held that TPC-D is entitled to supply electrical energy in retail, directly to all consumers within its area of supply, as stipulated in its licences, thereby confirming TPC-D as a distribution licensee for the entire city of Mumbai. Hon’ble Supreme Court of India observed that the U/s 2(76) concept of wheeling has been introduced in EA03 to enable distribution licensee who are yet to install their distribution lines to supply electricity directly to retail consumers. Subsequently, on 20th, August, 2008, the Commission notified the MERC (Specific Conditions of Distribution Licence applicable to The Tata Power Company Limited) Regulations, 2008, effectively confirming TPC-D as a distribution licensee for the entire city and suburbs of Mumbai, covering the licence areas of both BEST and RInfra-D. 8
Issues If a Distribution Licence is given to a new Licensee: Relaxation in USO and SOP due to Phased rollout of network Practical issues: ROW issue: Highly congested areas such as slums cannot accommodate networks of two licensees. Consumers in such areas may not get choice. If only few consumers want supply from new Licensee, it would require two supply points within the same premise which may not be feasible. Consumer mix: Cherry picking :- Migration of High end consumers to new Licensee Loss of CSS to existing licensee How to ensure similar consumer mix to both licensees? Reduction of cross subsidies Asset duplication: If the load is 100 MW for the entire, would both the Licensees required to build network for 100MW? If yes, both licensee would have redundant network. This will lead to underloading of both Licensees network leading to reduction in efficiency. Also increase in Tariff due to reduced sale of electricity against 100% asset related 9 expenses.
Issues If the Distribution Licensee has Generation Business, same would also be redundant. Redundancy of PPA Past liabilities (Regulatory Asset charges)
Conclusion Due to above, multiple Distribution Licensee concept has not been successful inspite of clear Act Provisions.
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Thank you
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International experience
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