Effects of Multiple Distribution Licenses in

One 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 Regulatory

Commission
4 Mr. Ranjeet Singh World Institute of Sustainable Development
5 Mr. Pradeep Kumar Darashaw & Co Pvt.Ltd.
Post Graduate Diploma in Electricity Regulati
 Structure of thoughts

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

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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 its
effective implementation & Identification of probable solutions to
handle these challenges

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Introduction about the Distribution
Franchisee

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 stage
SEBs in India have functioned as government departments and their operations
have lacked commercial orientation. The fall out has been that the objective of
supplying good quality and reliable power to the consumers at the most efficient
price has been compromised.
The irrational tariff policies being adopted by the SEBs has resulted in widening
of 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 has
greatly impacted the competitiveness of these sectors.
This has led to burgeoning commercial losses over the years and the industrial
and commercial consumers facing the maximum brunt as these two sectors were
cross-subsidizing the lower tariffs of the agricultural and domestic sector which
were due to political compulsions.
Due to above mention reasons Regulators and policy makers came up with idea
of private sector participation coupled with strong competitive market scenario
to meet the objective of better quality and lower tariffs.Participation by private
sector would also introduce a kind of “peer effect” on the public sector of the
kind experienced in the Indian telecom sector.

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Brief about the electricity Act 2003 related to
distribution 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 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 license within the
same area shall, without prejudice to the other conditions or requirements under this
Act, comply with the additional requirements (including 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 license, shall be
refused 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 for
grant of distribution licenses, using their own distribution network, for various areas under the
provisions of the Electricity Act, 2003.
However, due to various reasons including non-submission of network rollout plan and availability of
information from the incumbent licensee, the process has not resulted in the issuance of any new
parallel distribution license.
the recent Supreme Court judgment and the commercial arrangement between RInfra-D and TPC-D
have helped operationalization of parallel distribution in a unique way, i.e., without duplicating the
network.

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International Experience related to distribution
Franchisee

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 electricity
suppliers were required to have separate licenses for their supply business.
They also renamed the name of existing utilities as distribution network operators (DNOs) for
operations 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 supply
to be given. Electricity is distributed from the National Grid Network through a low voltage
network 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 defined
area, and to maintain that connection. Various charges related to DNO operations are as
follows:
 Use of system charges: To pay for network reinforcement, maintenance and renewal, paid by
generators and suppliers, broadly in proportion to their use of the network. Charges are
highest for generators in remote regions, far from demand.
 Connection charges: To cover costs of infrastructure required for new connections, paid by
generators and customers wishing to connect.
 Balancing charges: To meet costs of matching supply with demand and providing reserve
Generation, paid by large generators and suppliers.

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Working modal for the UK Distribution system

A B C
Network Licensee Supply Licensee  Supply Licensee

Area of Supply

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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 geographical
franchise 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 in
the 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 large
end-use customers in southern and eastern Australia. The retail electricity market
comprises the sale of electricity by retailers to end-use customers. Within the area
covered by the NEM, the retail market is partly competitive and partly operates on a
franchise basis

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Indian Experience related to Distribution
franchisee

Different models of multiple licensees which are existing in India:

A tale of 5 Cities:
 Delhi
 Jamshedpur

 Bhiwandi
 Kanpur

 Mumbai

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Delhi Distribution model

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

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Jamshedpur Model

Jamshedpur Utilities and Services Company Limited (JUSCO) is a company incorporated in

August 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 a
subsidiary 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 to
the township of Jamshedpur and the surrounding area and the licensee in the state. The
JUSCO Ltd was appointed as a second licensee in the area for supplying electricity to the
areas excluding township.

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Jamshedpur Model

B
Rest of the City

Jamshedpur Area
of Supply

A
Tata Steel Network & supply

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Bhiwandi Experience

Bhiwandi is a major textile hub of western India having one third of the country’s power looms. The estimated demand in the
circle is 750 MVA with an annual power input of around 2600 million units. About 55% of the total sales are to the power loom
sector, 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 of
Aggregate 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 Distribution
franchisee Agreement (DFA) with Torrent in December 2006 and TPL took over operation of Bhiwandi circle from 26th January
2007. For its entire term, i.e. 10 years in this case, franchisee is responsible for all the functions of the distribution licensee
within that area.

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Bhiwandi Model

Are of Supply of Licensee

Area of Operation
of franchisee

Bulk Supply of
Electricity from
Existing Licensee
Bulk Supply other than
Existing 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 the
business of supply of electrical energy and authorized to maintain a distribution system for supplying electricity to the consumers
in 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 the
other licensee UPPCL in the state of UP

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Kanpur Model

Are of Supply of Licensee

Area of Operation
of franchisee

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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

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