Paper published in Economic and Political Weekly, September,10,2005. The Electricity Act 2003 allows open access to the T & D networks of the licensees with the payment of a surcharge (over the wheeling charge) to compensate the licensees for the loss of revenue. The surcharge will play a critical role in managing the transition to competition as the ERCs try to balance the conflicting requirements of:  (1) making open access economically attractive for HT consumers; and (2) protecting the financial health of licensees.
The level of surcharge, method of its calculation, and impact on the utility are hotly debated issues. This paper, by a visiting fellow at Prayas – Mr. Daljit Singh, takes an overview of the recommendations made by various parties regarding the calculation of the surcharge, and then discusses some concerns about the application of these recommendations. This discussion is followed by an assessment of the likely revenue loss for the licensees and the extent to which the various recommended methods compensate the utilities for the revenue loss. The paper points out the need for re-focusing to address broader concerns, if the transition to competition is to be made a little easier.