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In the Name of Competition: The annals of ‘cost-plus competition’ in the electricity sector in Mumbai

Author(s): Ashwini Chitnis, Saumya Vaishnava Publication Date: February, 2017

With low unmetered consumption, near-universal access, and very low distribution losses, Mumbai was considered to be the perfect candidate for introducing choice for consumers and competition amongst suppliers. Competition was eventually introduced in suburban Mumbai through a unique protocol called ‘changeover’. Today, Mumbai is the only major city in India where two electricity distribution companies operate in the same area and compete for consumers, and as of 2015-16, 19% of suburban Mumbai consumers are exercising this option through changeover. This ‘competition’ in retail supply, however, has not succeeded in meeting the expectations of increased efficiency and reduced costs.

This report attempts to understand this unique experiment and chronicles Mumbai’s experience with competition under a ‘cost-plus’ tariff regime. It analyses three themes in detail, namely, power purchase planning, operationalisation of the parallel licence arrangement, and the role played by key stakeholders. Highlighting some of the key regulatory and operational challenges in implementing the arrangement, the report also shows the impacts of the regulatory and policy decisions on consumers. As the electricity sector becomes increasingly complex with an increase in open access, greater role of renewables and markets, and the proposed separation of the carriage (wires) and content (supply), Mumbai’s experience offers useful lessons and insights to ensure that policy keeps pace with these changes and translates into real benefits for consumers.

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