A plausible rewiring in Karnataka

Recently, in Karnataka, Tata Power Company Limited (TPCL) sought distribution licences across areas presently served by State-owned Electricity Supply Companies (ESCOMs). These applications have come as the Union government is again considering competition in distributing electricity licences. Therefore, what Karnataka is deliberating on is not just a routine licensing request; it is deciding what kind of power market other States may later be asked to emulate.

The promise is attractive. Consumers want reliable supply and responsive service. Moreover, it has precedents — Mumbai has overlapping licensees; Delhi and Odisha use distinct distribution companies with State participation; and Ajmer follows a franchise model. But these precedents also teach caution. Competition for a market, where an operator assumes a defined territory, is different from competition within a market where suppliers seek consumers in an area which is already being serviced. Karnataka appears to be testing the latter.

Electricity is not ordinary retail. Urban households, commercial establishments and industries are easier and more profitable to serve. In contrast, rural supply, irrigation pumps and dispersed connections cost more. As State utilities cannot simply walk away from remote or commercially unattractive consumers, if an entrant gains access to remunerative urban pockets while inherited obligations stay with the State, reform may privatise revenue while socialising cost.

This makes geography important. Public descriptions of the TPCL’s applications refer to clusters of adjoining districts. A closer reading, however, appears to indicate a narrower footprint centred on city and town municipal areas. Karnataka’s licensing regulations require maps of the proposed supply area and a list of the local authorities concerned. These are not just clerical attachments; without accessible maps and an exact territorial description, consumers cannot know whether they are affected. The chosen geography must be explained before the process advances.

Questions of cost

The harder question is financial. State utilities use contributions from higher-paying consumers to support subsidised categories. They also carry long-term power-purchase commitments, including fixed charges that do not vanish when demand migrates. How will cross-subsidy surcharge and additional surcharge operate if TPCL supplies to consumers which already have ESCOM coverage?

The applications reportedly invoke a Supreme Court ruling which states that an incumbent network must facilitate wheeling for a parallel licensee on payment of wheeling charges and surcharge. However, that proposition cannot simply be transplanted into Karnataka without a carefully designed framework. Section 42 of the Electricity Act addresses open access, protection of existing cross-subsidy and recovery of stranded fixed costs. Karnataka has not determined a clear inter-licensee surcharge mechanism for this arrangement. The regulator must decide who pays, to whom, on what basis, and whether consumers using Tata Power’s future wires stand differently from those using ESCOM infrastructure. Otherwise, attractive consumers may migrate before the costs left behind are allocated. There is danger at both ends. If no surcharge is recovered, remaining ESCOM consumers absorb the deficit. If an ill-designed surcharge is added despite cross-subsidy already being embedded in Tata Power’s regulated retail tariff, migrating consumers may pay twice. Competition requires a principled method, not an improvised levy determined after public scrutiny.

Network design presents another choice. Competition should not produce parallel forests of poles, cables and substations. Nor should a new entrant rely indefinitely on public infrastructure without transparent charges and maintenance duties. India needs a neutral framework for shared networks.

None of this is an argument against private participation. However, consumer choice cannot be built on unclear maps, selective geography, duplicated networks or unresolved surcharges. The real question is not whether competition should enter electricity distribution. It is whether competition will carry the same obligations as the public system it seeks to disrupt.

The writer is an advocate focusing on consumer rights.