Probable new involvement in Karnataka

“What Karnataka is considering is not just a routine power distribution license application; it is deciding what kind of electricity market other states may later be asked to emulate”. File | Photo credit: The Hindu

Recently in Karnataka, Tata Power Company Limited (TPCL) sought distribution licenses in areas currently served by the State Electricity Supply Corporation (ESCOM). The requests came at a time when the Union government is once again considering competition in the distribution of electricity licences. Therefore, what Karnataka is considering is not just a routine license application; it decides what kind of electricity market other states may later be asked to emulate.

The promise is attractive. Consumers demand reliable delivery and responsive service. Moreover, it has precedents – Mumbai has overlapping licensees; Delhi and Odisha use separate distribution companies with state participation; and Ajmer follows a franchise model. But these precedents also teach caution. Competition in a market where an operator occupies a defined territory is different from competition in a market where suppliers seek consumers in an area already served. Karnataka seems to be testing the latter.

Electricity is not an ordinary retail store. Serving urban households, commercial facilities and industries is easier and more profitable. In contrast, rural supply, irrigation pumps and scattered connections are more expensive. Since state services cannot simply walk away from distant or commercially unattractive consumers, if the participant gains access to paying city pockets while legacy liabilities remain with the state, reform can privatize revenues while socializing costs.

This makes geography important. Public descriptions of TPCL applications refer to clusters of contiguous districts. However, on closer reading, it appears to be a narrower track focused on urban and urban areas. Karnataka’s licensing regulations require maps of the proposed supply area and a list of local authorities concerned. These are not just clerical ties; without available maps and an accurate territorial description, consumers cannot know if they are affected. The selected geography must be explained before the process can proceed.

Cost issues

The more difficult question is financial. State-owned enterprises use contributions from higher-paying consumers to support subsidized categories. They also carry long-term commitments to purchase energy, including fixed charges that don’t go away when demand migrates. How will the cross subsidy surcharge and additional surcharge work if TPCL supplies to consumers who already have ESCOM coverage?

The applications are said to refer to a Supreme Court ruling which states that an established network must facilitate concurrent driving by licensees after paying per-cycle charges and surcharges. However, this proposal cannot simply be transferred to Karnataka without a carefully designed framework. Section 42 of the Electricity Act deals with open access, protection of existing cross-subsidies and reimbursement of stranded fixed costs. Karnataka has not laid down a clear surcharge mechanism between licensees for this arrangement. The regulator needs to decide who pays whom, on what basis and whether consumers using future Tata Power cables stand a different price than consumers using ESCOM’s infrastructure. Otherwise, attractive consumers may migrate before the remaining costs are allocated. The danger is at both ends. If no surcharge is refunded, the remaining ESCOM consumers will absorb the shortfall. If a poorly designed surcharge is added despite cross-subsidy already embedded in Tata Power’s regulated retail tariff, migrating consumers may end up paying twice. Competition requires a principled method, not an impromptu levy determined after public scrutiny.

Another option is network design. Competition should not create parallel forests of poles, cables and substations. A new entrant should also not rely indefinitely on public infrastructure without transparent fees and maintenance obligations. 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, duplicate networks or unresolved surcharges. The real question is not whether competition should enter electricity distribution. The issue is whether competition will bear the same obligations as the public system it seeks to disrupt.

The author is an advocate focused on consumer rights.

Published – 24 Jun 2026 0:34 IST