Operationalization of parallel license mechanism in Mumbai brought in new hope and significantly piqued interest in a city that was reeling under high tariffs. It also set high expectations for efficiency improvement and better planning, as it was felt that competition would help counter the incentive for overspending, inherent in a ‘cost-plus’ tariff approach. However, nothing of the subsequent Mumbai experience met these expectations.
The most interesting aspect of the Mumbai experiment was the use of existing licensee’s (i.e. Reliance Infrastructure ltd, referred to as RInfra) wires to enable the parallel licensee (Tata Power Co Ltd, referred to as TPC) to provide supply. This mechanism was termed as ‘changeover’. It meant that the consumers did not have to wait till the new licensee laid a parallel network and more importantly, in a highly congested city like Mumbai, it also avoided unnecessary duplication of wires and substations.
However, unfortunately, all these benefits were short-lived as lack of clarity regarding apportioning of cross-subsidy and regulatory asset significantly reduced the benefits of changeover for many. Further, as changeover was an interim process, there was confusion regarding whether TPC was supposed to lay a parallel network or not. Detail developments in this regard are captured in PEG’s submissions regarding TPC’s and RInfra’s recent tariff petitions.
While initially changeover seemed to be based on the principle of non-duplication of network, TPC-D has been expanding its network right from the inception of changeover. This has created serious issues regarding how the duplicate network can be utilised and operationalised. Recently, MERC issued another Interim Order in November 2015, inter alia constituting a committee to make recommendations on these issues. On 21st June 2016 MERC held a separate public process for TPC-D's network rollout plan and the said committee's recommendations.
During the public hearing PEG made a presentation in which it argued that the current piecemeal approach towards parallel license operationalization is not going to help and instead a completely different and bold approach is needed to tackle the problem. In this regard, PEG has also proposed an alternative, which if implemented can lead to following benefits for suburban Mumbai:
- Put an end to cost-plus approach and regulatory assets, though it ensures recovery of all past dues (up to FY 16)
- Give certainty to consumer by deciding ceiling for all tariff components
- Complete flexibility to licensees in terms of managing distribution cost, power procurement and network rollout
In such a scheme, instead of managing and reviewing individual costs and expenses of each licensee, the regulator can focus on ensuring:
- Universal supply obligation
- Compliance with standards of performance
- Free and fair competition through changeover and non-discriminatory open access to distribution wires and transmission system