1.
The State Government, through
its letter dated April 13, 2004 has referred several issues
pertaining to the restructuring of the Maharashtra State Electricity
Board (MSEB) for advice of the Commission.
Advice of the Commission has also been sought on other
matters that may be relevant for the restructuring of MSEB.
In response to this reference from the State Government,
the Commission is advising the State Government in accordance
with the provisions of Section 86 (2) (iii) on the important
issues and considerations. The Commission is keen that the statutory
deadline of June 9, 2004 for restructuring of the sector is
met, and hence is basing its views on the information presently
available to it.
2.
Distribution company
formation: The
State Government has outlined three options on distribution
company formation, as stated below:
(i)
Option 1: Extension of existing structure through
a single distribution company being vested with the distribution
business of MSEB
(ii)
Option II: A traditional
or balanced distribution company structure featuring three distribution
companies having comparable urban and rural consumer mix
(iii)
Option III: Urban-rural
structure featuring two urban and four rural distribution companies
The State Government has requested the Commission
to indicate its preference among the above options. It appears from the State Government’s letter
and the presentation made to the Commission on April 7, 2004
that the State Government is inclined in favour of Option III
for restructuring of the distribution business of MSEB.
The Commission appreciates the need to focus better on
efficiency improvements and also for permitting competitive
response through price reductions to prevent flight to captive
generation or alternate supplies under open access, as envisaged
in Option III. However,
the Commission desires to specify certain criteria that need
to be fulfilled while restructuring MSEB.
(i)
The distribution companies
formed should be manageable in size, in terms of the system
demand, number of consumers served and the geographical spread
of the utility.
(ii)
While some dissimilarities
in size, consumer mix (revenue potential) and other attributes
is possible, the State Government should ensure that the dissimilarities
do not result in a situation that makes the operations of any
particular company unviable.
(iii)
The principles for allocation
of PPAs should be determined upfront. While an optimal cost allocation based on the “capacity to pay”
of each distribution business may be necessary, certain risk
factors would need consideration (e.g. reliance on specific
stations, hydrology risks, risks arising out of consumer mix
changes, etc).
(iv)
In view of the potential
differences in operating parameters and consumer mix across
distribution companies, preventing divergence of tariffs would
be a difficult task. The
State Government should formulate specific mechanisms as a part
of the restructuring process to ensure that objectives of end
use tariff uniformity across the State for particular tariff
categories (if any) are not vitiated.
(v)
The State Government should
consider innovative arrangements on rural distribution management
through franchising arrangements to reduce the high level of
losses in the rural areas.
The Commission notes with concern that certain rural
circles have Aggregate Technical and Commercial Losses (AT&C)
losses in excess of 80%.
In view of the complexities
involved the restructuring can be undertaken in a phased manner,
with the basic requirements for compliance with the Electricity
Act, 2003 provisions being adhered to initially.
