INDIA Law and Practice Contributed by: Anupam Varma, Poonam Verma Sengupta, Sakshi Kapoor and Rajesh Jha, JSA
Capital Adequacy and Eligibility An applicant seeking a distribution licence or paral- lel licence must satisfy the Distribution of Electricity Licence (Additional Requirements of Capital Adequa- cy, Creditworthiness and Code of Conduct) Rules, 2005. These require a minimum area of supply (a municipal corporation area, three adjoining revenue districts, or a smaller area as notified), capital ade- quacy of at least 30% equity of the capital investment required for the network in that area, and the credit- worthiness to raise the balance. Parallel Licence, Franchisees and Trading The exclusivity is further qualified by alternative sup- ply structures including the following: • A parallel licensee may serve the same area by laying its own network or by supplying over the existing Discom’s network on payment of wheeling charges and a surcharge. • A distribution franchisee may be appointed by a licensee under Section 14 to distribute in part of its area without a separate licence. • A licensee may trade or sell electricity to another licensee . • Open access allows large consumers to source supply from third parties. Even within its area, a licensee is subject to competi- tion discipline under the Electricity Act itself. Section 60 empowers the appropriate Commission to act against abuse of a dominant position, anti-com- petitive agreements or combinations, and Section 66 directs it to develop the market, including trading. The Electricity Act is a self-contained code under which the specialised regulators secure transparency, com- petition and consumer protection, so that competi- tion issues intrinsic to electricity are addressed by the Commissions. 5.6 Electricity Distribution System Charges and Terms of Service Charges Are Set by the State Regulator Distribution charges and terms of service are deter- mined by the SERC under Sections 62 and 86 of the Electricity Act, not by the utility. The principal charges are the retail supply tariff payable by consumers, the
tric lines, subject to prior approval by the appropri- ate Government. The Land-Licence Model Most land underlying the distribution network is held not in ownership but under a land licence from the Government. The terms may differ between public and privatised utilities: • Where the licensee is a government department or a state-owned company, the State Government makes land available to it on a concessional or economical basis under a government policy. • Where a private company takes over the distribu- tion business, the right to use the existing govern- ment land has been transferred to it through a statutory Transfer Scheme. The Discom uses the land under a licence from the Government on pay- ment of a licence fee. Compensation Compensation for damage to trees, crops and struc- tures is determined under Section 67 of the Electricity Act read with the Works of Licensees Rules, 2006 and Sections 10 and 16 of the Indian Telegraph Act, 1885. 5.5 Monopoly Rights for Electricity Distribution Entities A distribution licensee is allowed to supply and distrib- ute electricity to consumers in a specified area of sup- ply within which it carries the universal obligation to supply. This is not an absolute monopoly, because the Electricity Act permits the SERC to grant licences to more than one distribution licensee (a parallel licence) in the same area. How the Rights Are Obtained • By licence : The right is conferred by the SERC through a licence under Section 14 specifying the area of supply. • Deemed licensees : State distribution utilities are deemed licensees under the provisos to Section 14 without a separate grant. • Parallel licensees : The sixth proviso to Section 14, read with Section 15, permits the SERC to license more than one distribution licensee in the same area.
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