1. Competition in the Indian electricity sector The experience so far Shahid Hasan Fellow, Energy Reforms Group The Energy and Resources Institute New Delhi, India August 17, 2005

2. Pre-reform ESI structure: Monopoly Model GENERATION CUSTOMER DISTRIBUTION Energy Sales Vertical Integration TRANSMISSION Energy Flows In Same Company

3. Post-reform ESI structure: SBM GENCOCGSIPP SINGLE BUYER CUSTOMER DISTCO Energy sales Disaggregated Version

4. Electricity Act 2003: Competition, Choice and OA

5. Competition in Generation  Entry barrier removed. Generation de-licensed  Consumers can access electricity directly from Gencos under OA  Captive generation deregulated  Surplus power can be sold to third parties including licensees and consumers Wheeling charges, if grid is used No cross-subsidy surcharge on open access for own use

6. Competition in Transmission  State sector dominance  Trading by transmission licensees prohibited  May enter into other businesses for optimal utilization of assets : D, G & S No cross holding prohibition  Private sector entry into transmission allowed for new transmission lines like in Argentina Selection through competitive bidding (allowing private transmission utilities apart from STU and CTU)

7. Competition in Transmission  State sector dominance  System operation under STU/CTU control  Trading by transmission licensees prohibited  May enter into other businesses for optimal utilization of assets : D, G & S No cross holding prohibition

8. Competition in Transmission  Transmission licensee to provide OA to any licensee, generating company or consumer on payment of applicable charges  Private sector entry into transmission allowed for new transmission lines like in Argentina Selection through competitive bidding

9. Competition in Distribution & Retail  Distribution open to multiple licensing in same area – parallel networks can co-exist  Distribution licensees to provide OA  Distribution licensees exempted from the requirement of a license for trading

10. Competition in Distribution & Retail  Distributor can franchise without licensing, also stand-alone generation & distribution in rural areas  Consumers can buy power directly from Discos/Generators/CPP/Traders Even choose from multiple distributors

11. Trading  Trading identified as distinct activity outside G/T/D  Tariffs and trading margins under regulatory control  Traders can avail OA to transmission and distribution systems  Traders can buy from Gencos, licensees, other traders to sell to consumers and other distribution companies/traders

12. Open Access  OA to introduce competition in generation and supply of electricity  OA to facilitate choice to distribution companies and consumers  Open access first to transmission, then to distribution subject to regulatory intervention

13. Open Access-implementation requirements  Available Transmission Capacity – determination  Metering and Data Communications  Billing and Settlements – systems, Code  Scheduling and Dispatch Procedures – changes  Cross-subsidy Surcharge

14. Emerging industry structure Amit Kapur (2004): SAFIR 5 Customer Distribution Transmission Generation Customer TRADER Discos Genco OA: Distribution OA: Transmission TRADER

15. Challenges and concerns  The Act does not explicitly mandate a segregation of the wires and supply business at the distribution level  Complete elimination of cross-subsidies in utility services is not always possible even in the most developed countries  No time-frame for introducing OA in distribution

16. The tasks ahead  Need to develop appropriate transmission pricing mechanism and operation rules to avoid abuse of monopoly power  Emphasis must be laid on efficiency improvements to ensure gradual phasing out of cross-subsidy  Restore financial viability of distribution business  OA at transmission must be accompanied with OA access at distribution