dc.description.abstract | Open access and multiple distribution licensees in the same area are two key
provisions in the Electricity Act 2003 for introducing competition in the power sector.
However, open access is subject to a cross-subsidy surcharge to compensate the incumbent
distribution licensee for loss of cross-subsidy. Similarly, new distribution licensees may be
required to have a mix of cross-subsidising and subsidised consumers to prevent 'cream
skimming'. These restrictions will reduce the competitive impact of these provisions since
cross-subsidy is likely to be difficult to reduce, especially for agriculture and rural
consumers. Two steps are, therefore, necessary for introducing competition in the power
sector. First, there should be a physical and organisational separation of agriculture and
rural supply. Second, cross-subsidy in tariffs should be eliminated for urban domestic
consumers and replaced with 'lifeline' rates for low income consumers and
subsidised extension of the network to high cost areas. As in the case of telecommunications
this may be funded through a sector specific 'universal charge | |