Tata Power wins Mumbai Reliance users5 min read . Updated: 11 Dec 2009, 11:56 PM IST
Tata Power wins Mumbai Reliance users
Tata Power wins Mumbai Reliance users
Mumbai: Amit Narsana, a businessman in the Mumbai surburb of Andheri, is relishing the prospect of exercising a rare power in India—the choice of changing the firm that supplies electricity to his home.
He plans to switch to Tata Power Co. Ltd from Reliance Infrastructure Ltd as soon as he can. The reason—his power bills.
Narsana and his fellow occupants of the Navshilpvani housing society at Lalubhai Park Road in Andheri (West) have already kicked off the process of switching suppliers. The company has lost 1,700 consumers to Tata Power since October, according to a Reliance Infrastructure official, who didn’t want to be named.
This is the first time that consumers anywhere in India have the option to choose their power company, said Sudhir K. Nair, head of Crisil Research.
“This option is unique to Mumbai suburban consumers as both distributors have a fair share of good quality transmission and distribution infrastructure in the area," he said. “As other cities do not have multiple distributors, such an option is not available to consumers there."
Suhas Amberkar, another Andheri resident, said at least four cooperative housing societies in his area have already written to the Mumbai Grahak Panchayat, a consumer body, for permission to switch their provider.
“I expect a 25% reduction in my monthly electricity bills when I shift to Tata," he said.
Narsana and Amberkar are among thousands of consumers in Mumbai who may shift their allegiance to Tata Power to save on cost, thanks to a court ruling that allows the firm to sell power directly to homes.
Reliance Infrastructure cannot match the rival’s prices because it buys most of its power from bulk sources.
“We generate 500MW of power in Dahanu for about Rs2.45 per unit, which is among the lowest," said the Reliance official cited above. “However, we need 1,450MW of power, so we buy 500MW from Tata at Rs4.83 per unit and have to also buy another 450MW from the open market at Rs8.96 per unit."
Reliance Infrastructure, a Reliance-Anil Dhirubhai Ambani Group firm, supplies power to suburban Mumbai from Bandra to Bhandup, covering an area of 384 sq. km. It is one of the three companies that supplies power in Mumbai, besides the Brihanmumbai Electric Supply and Transport Undertaking ( BEST) and Tata Power.
The largest generator of electricity in Mumbai, Tata Power, uses 447MW of its 2,025MW capacity for supplying large companies and commercial establishments such as malls and multiplexes. It supplies 800MW to BEST and 500MW to Reliance, besides Mumbai’s rail network and the Bhabha Atomic Research Centre.
The surplus means that Tata can afford to sell electricity at lower rates thanks to a July 2008 judgement by the apex court that allows the firm to supply consumers in Mumbai with a requirement of 1,000 units or less. Typically, a domestic consumer in Mumbai consumes around 300 units of power per month.
Tata Power charges Rs1.30 per unit for 0-100 units of power compared with Rs1.72 per unit charged by Reliance and Rs1.80 per unit charged by BEST. For 100-300 units, Tata charges Rs2.70 per unit compared with Rs4.02 per unit charged by Reliance. BEST charges Rs3.70 per unit.
Besides the per-unit charges, all residences regardless of their electricity supplier have to pay a fixed amount of ₹ 0 per month if they consume 0-100 units of power, ₹ 50 per month if they consume 101-500 units of power and ₹ 00 per month if they consume over 500 units of power.
Power distributing companies in Mumbai have to get their tariffs approved by the regulator—the Maharashtra Electricity Regulatory Commission (MERC).
Reliance Infrastructure has around 2.9 million customers, 90% of them residential, which consume 300 units of power or less per month.
The shift to Tata Power may not have a big impact on Reliance’s profits because any loss in revenue could be curtailed by charging Tata for using infrastructure, said an analyst from a domestic brokerage.
“It will have a sentimental impact because consumers are migrating to its competitor. But Tata will have to use the existing infrastructure of Reliance for the last mile and, therefore, the charges for open access and wheeling will accrue to them, because unlike the telecom sector, here you cannot have duplication of the network till the last mile," said the analyst from the domestic brokerage, who declined to be quoted as he is not authorized to speak to the media. Wheeling charge is the fee paid by a utility to transmit power using another utility’s infrastructure (transmission towers, electrical cables, etc.).
The Reliance Infrastructure official concurred: “We add 75,000 consumers every year and expect to continue to do so. Of course the loss of consumers matters to us, but with increasing number of people moving to the suburbs, we will continue to add new consumers."
The issue dates back to the early 1990s when the erstwhile public sector firm Bombay Suburban Electric Supply (BSES) accused Tata Power of poaching consumers in the suburbs, by wooing housing societies and commercial complexes. BSES, acquired by Reliance in 2002, took the matter to MERC arguing that Tata Power’s licence issued in 1910 gave it permission to only sell bulk power of over 1,000 units and not to retail users.
In July 2003, MERC restrained Tata from selling power to retail consumers. However, the Electricity Act, 2003, allowed firms to compete for consumers, paving the way for Tata Power to enter the retail segment. The bid was contested in the courts and Tata Power won a favourable judgement. Tata Power currently has 30,397 consumers with most of its generated power going to bulk consumers, mainly the railways. It has targeted another 40,000 (switchover consumers and new applicants) by March 2010.
In an email reply, Tata Power said it has received 7,500 completed applications for the switchover till date.
“As on 10 December 2009, 2,713 consumers were shifted from their earlier distributor to Tata Power. Where Tata Power will be using other distributors’ infrastructure (open access), the residential consumers will be charged a nominal fee for the wheeling charges i.e, Rs0.88 paise/unit less Tata Power’s wheeling charges i.e, 37 paise," a spokesperson said via email.
Open access is a positive for Tata, said Citigroup Global Markets analysts Venkatesh Balasbramaniam, Deepal Delivala and Atul Tiwari in a research note in September.
“MERC has allowed distribution open access in Mumbai and 45,000 retail consumers have applied to move," they wrote. “From April 2010, the company will stop supplying 500MW to R-Infra and this capacity will be free."
Crisil’s Nair says replicating the Mumbai model in other cities would be difficult because a new entrant would need to set up the infrastructure. “But there is the franchisee route in which the distribution assets continue to be owned by the state utility. This model is currently operational in Bhiwandi, Maharashtra, and is under implementation in other cities like Agra and Kanpur," he said.
BEST is almost more or less immune to consumer shifts because the Electricity Act, 2003, protects state-run companies from competition. The law doesn’t allow private companies to use BEST infrastructure, forcing them to re-lay cables and other equipment, making acquisition of new consumers unviable.