BSES, is one of the two distribution franchisee companies responsible for distribution of electricity in the city of New Delhi, India.
Though, BSES is owned by Reliance group, which has asset base across the value chain of electricity, the electricity supply is not assured from its counterparts in electricity generation.
The other distribution franchisee owned by Tata group is vertically integrated i.e. the the distribution franchisee entity of the group purchases electricity from it's counterpart in electricity generation.
In India, electricity prices are calculated by the individual suppliers, but are approved by a regulatory body, but may be squashed by the political parties.
hence, the electricity prices in most of the states in India are kept low, mostly due to the influence of the political parties. It has forced the distribution franchisees to a corner, where they are compelled to supply costly electricity but at the same time cannot recover their costs from the consumers.
On top of that, the credit cycle or the time taken to recover the money from the consumers or from the Govt. takes eternity. Hence, only a few players who have big pockets and the wherewithal to lobby, influence and recover part of the losses can only survive as a distribution franchisee.
And even these big players are having a tough time surviving this supply/demand dynamics in electricity sector in India.
The only work around seems to be the option of vertical integration, where the same group controls the production to distribution of electricity. Not that I am suggesting the de-unbundling of utilities, but the adversities of ensuring a constant cash flow can only be effectively mitigated by assurance of activities across the value chain.
While a few states in India have surplus power, most of them are reeling in power crisis. It is not in headlines right now, due to the reduced demand pertaining to the seasonal variations. But, as summer starts kicking in, lot of news headlines would be surrounding the availability of electricity.
We already saw companies trying to spread their wings across all the aspects of generation,transmission and distribution. We had Essar building its power plants, transmission line and also hope for distribution franchisee. As newer models of electricity open up including distributed generation, the big players will have to move towards confirming their sale and tie in customers through vertical integration. Players in Silos may end up either not having customers or have customers but no assured economical supply of electricity. Wait and watch!