Presention to WTI on Distribution franchisee

8/7/2019 Presention to WTI on Distribution franchisee

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Post Graduate Diploma in Electricity Regula

Effects of Multiple Distribution Licenses inOne Geographical Area in Major Cities

April 2010

Sr. No. Name of Members Organization

1 Mr. T.Muraleedharan The Tata Power Company Limited

2 Mr. Abhinav Sharma The Tata Power Company Limited

3 Mr. Amit Kadam Maharashtra Electricity RegulatoryCommission

4 Mr. Ranjeet Singh World Institute of Sustainable Development

5 Mr. Pradeep Kumar Darashaw & Co Pvt.Ltd.


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2Post Graduate Diploma in Electricity Regulation

Objective of the study

Introduction about the Distribution Franchisee & Geographical area.Brief about the electricity Act 2003 related to distribution franchisee regulations.

International Experience related to distribution Franchisee

Indian Experience related to Distribution franchisee.

Different existing model for multiple licensees in India

Need of Multiple Licenses in Indian scenario

SWOT Analysis related to Distribution franchisee

Summary of the study

Structure of thoughts


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Objective of the study

The objective of the study is to analysis of the different models existing

in India as well as abroad, along with the challenges involved in itseffective implementation & Identification of probable solutions tohandle these challenges


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Introduction about the DistributionFranchisee

Private sector participation on the generation side has materialized in a number

of states, however, on the distribution side it is still in a nascent stageSEBs in India have functioned as government departments and their operationshave lacked commercial orientation. The fall out has been that the objective ofsupplying good quality and reliable power to the consumers at the most efficientprice has been compromised.

The irrational tariff policies being adopted by the SEBs has resulted in wideningof gap between the cost of supply and average tariff over the years and has had

a negative impact on both the industrial and commercial sectors which hasgreatly impacted the competitiveness of these sectors.

This has led to burgeoning commercial losses over the years and the industrialand commercial consumers facing the maximum brunt as these two sectors werecross-subsidizing the lower tariffs of the agricultural and domestic sector whichwere due to political compulsions.

Due to above mention reasons Regulators and policy makers came up with ideaof private sector participation coupled with strong competitive market scenarioto meet the objective of better quality and lower tariffs.Participation by privatesector would also introduce a kind of peer effect on the public sector of thekind experienced in the Indian telecom sector.


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Brief about the electricity Act 2003 related todistribution franchisee regulations.

In case of parallel distribution licensees, the relevant provision of the Act is: ..14..

Provided also that the Appropriate Commission may grant a licence to two or morepersons for distribution of electricity through their own distribution system within thesame area, subject to the conditions that the applicant for grant of license within thesame area shall, without prejudice to the other conditions or requirements under thisAct, comply with the additional requirements (including the capital adequacy, credit-worthiness, or code of conduct) as may be prescribed by the Central Government, and nosuch applicant who complies with all the requirements for grant of license, shall berefused grant of license on the ground that there already exists a licensee in the same

area for the same purpose:

With respect to parallel distribution licensees, during 2003, various players filed applications forgrant of distribution licenses, using their own distribution network, for various areas under theprovisions of the Electricity Act, 2003.

However, due to various reasons including non-submission of network rollout plan and availability ofinformation from the incumbent licensee, the process has not resulted in the issuance of any newparallel distribution license.

the recent Supreme Court judgment and the commercial arrangement between RInfra-D and TPC-Dhave helped operationalization of parallel distribution in a unique way, i.e., without duplicating thenetwork.



International Experience related to distributionFranchisee

United Kingdom Distribution Reforms:

The United Kingdom (UK) electricity industry was one of the first to experience reforms, which

became a model for the remaining countries.

United Kingdom restructured the market under the Utilities Act 2000, the public electricitysuppliers were required to have separate licenses for their supply business.

They also renamed the name of existing utilities as distribution network operators (DNOs) foroperations of the distribution network.

Presently there are two types of business under the distribution sector.

Distribution - Allows the licensee to distribute electricity for the purpose of enabling a supplyto be given. Electricity is distributed from the National Grid Network through a low voltagenetwork of wires to customers

Supply Allows the licensee to supply electricity to different premises.

DNOs are under a statutory duty to connect any customer requiring electricity within a definedarea, and to maintain that connection. Various charges related to DNO operations are asfollows:

Use of system charges: To pay for network reinforcement, maintenance and renewal, paid bygenerators and suppliers, broadly in proportion to their use of the network. Charges arehighest for generators in remote regions, far from demand.

Connection charges: To cover costs of infrastructure required for new connections, paid bygenerators and customers wishing to connect.

Balancing charges: To meet costs of matching supply with demand and providing reserveGeneration, paid by large generators and suppliers.



Working modal for the UK Distribution system

A

Network Licensee

B

Supply Licensee

C

Supply Licensee

Area of Supply



Australia Experience

A two-tier system has been established for electricity distribution and supply in each state.

First tier retailers: These are attached to a distribution business with a monopoly geographicalfranchise in that state. First-tier retailers can sell electricity to customers throughout the state,whether or not the customers are located within the accompanying distribution franchise.

Second-tier retailers: These are stand-alone businesses not attached to a distribution business inthe relevant state. Second-tier retailers can also sell electricity to customers throughout the state.A second tier retailer in one state may be a first-tier retailer in another state.

The major Australian wholesale electricity market, the National Electricity Market (NEM),comprises the sale of bulk electricity by generators to electricity retailers and largeend-use customers in southern and eastern Australia. The retail electricity marketcomprises the sale of electricity by retailers to end-use customers. Within the areacovered by the NEM, the retail market is partly competitive and partly operates on afranchise basis


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Indian Experience related to Distributionfranchisee

Different models of multiple licensees which are existing in India:

A tale of 5 Cities:Delhi

Jamshedpur

Bhiwandi

Kanpur

Mumbai



Delhi Distribution model

The model in Delhi is basically an example of privatization. Though there exist multiplelicensees in a single geographical area



Jamshedpur Model

Jamshedpur Utilities and Services Company Limited (JUSCO) is a company incorporated inAugust 2003 under the provisions of The Companies Act, 1956 and is a wholly owned

subsidiary of Tata Steel Limited.

In the city of Jamshedpur in Jharkhand a second distribution license was granted to JUSCO asubsidiary of Tata Steel for supply of electricity in for the revenue district of Saraikela-Kharsawan.

In the Jamshedpur model due to the historic background, Tata Steel was supplying power tothe township of Jamshedpur and the surrounding area and the licensee in the state. TheJUSCO Ltd was appointed as a second licensee in the area for supplying electricity to the

areas excluding township.


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BRest of the City

Jamshedpur Areaof Supply

ATata Steel Network & supply

Jamshedpur Model


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Bhiwandi Experience

Bhiwandi is a major textile hub of western India having one third of the countrys power looms. The estimated demand in thecircle is 750 MVA with an annual power input of around 2600 million units. About 55% of the total sales are to the power loomsector, and government of Maharashtra provides significant subsidy to these consumers.

The town has a reputation as a chronic defaulter of power bills for more than 10 years and has a record of very high level ofAggregate technical and commercial (AT&C) losses (around 60% in the year 2006-07).

The input based franchisee model was hoped to bring in certain amount of fixed revenue from circle. MSEDCL signed Distributionfranchisee Agreement (DFA) with Torrent in December 2006 and TPL took over operation of Bhiwandi circle from 26th January2007. For its entire term, i.e. 10 years in this case, franchisee is responsible for all the functions of the distribution licenseewithin that area.


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Bhiwandi Model

Area of Operationof franchisee

Bulk Supply ofElectricity from

Existing LicenseeBulk Supply other thanExisting Licensee

Are of Supply of Licensee


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Kanpur Experience

Kanpur Electricity Supply Company Limited is a company incorporated under the Companies Act, 1956 which is entrusted with thebusiness of supply of electrical energy and authorized to maintain a distribution system for supplying electricity to the consumersin its area of supply.

Kanpur Electricity Supply Area was separated as a subsidiary company of UPPCL

KESCO came into existence due to the restructuring of UP State Electricity Board and existed as a separate licensee with theother licensee UPPCL in the state of UP


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Kanpur Model

Area of Operationof franchisee

Are of Supply of Licensee


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Need of Multiple Licenses in Indian scenario

Reliable supply of electricity is one of the basic assumptions in terms of economic progress of any Country

Presention to WTI on Distribution franchisee

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