Smart Metering in India and its Perils on Competition Law

The authors are Ishan Ashish and Devanshu Latish Gajbhiye, fourth year students at National University of Study and Research in Law (NUSRL), Ranchi.

Introduction

India is transforming its energy sector landscape by heavily investing in the sector. It recently made a paradigm shift in the electricity regulation system by introducing smart metering in the country. The Government of India in 2021 provided an estimated outlay of INR 3037.58 billion over a period of five years under the Revamped Distribution Sector Scheme (“RDSS”) to implement pre-paid smart meter projects across the country. REC Limited and Power Corporate Finance Limited (“PCFL”) have been appointed as nodal agencies and have been assigned to carry out RDSS in an efficient manner through Public-Private Partnerships. The Energy Efficiency Service Limited (“EESL”), which is a joint venture of PSUs under the Ministry of Power, is currently implementing the Smart Metering Program to overcome the billing and collection deficiencies of Distribution Companies (“DISCOMs”).

The smart meter business is growing exponentially in India and is touted to be a game changer in the power sector of the country. Private entities such as Tata Power, Genus Power and HPL Electric & Power have cumulatively received orders worth INR 5,000 crores. However, with the growth of the smart metering, the concern regarding its potential implication on competition law is a matter of concern. The authors through this blog attempt to analyse the same, and attempt to exhibit as to how the collection and concentration of consumer data through smart meters can potentially lead to competition issues. The authors, in order to alleviate the competition-related concerns, suggest that the focus should be on improving interoperability of data between different entities, which will lead to enhancement in competition as well as provide consumers with the option to choose among different entities.

Understanding Smart Metering and its Challenges

Smart meters are essentially a new generation of energy meters that allow a consumer to learn about their consumption pattern and help utility systems monitor and bill customers without any kind of manual intervention whatsoever. The smart meters, in simpler terms, are just like pre-paid or post-paid sims which are recharged as per requirement or paid for as per the amount of usage. Smart meters have several benefits which include digital sending of the consumer's electricity reading to the utility, tracking electricity consumption using a mobile application, and a pre-paid function which enables the consumer to recharge the smart meter in advance and avoid any unexpected bills. The enablement of smart meters will be dependent upon the Advance Metering Infrastructure (“AMI”) system. An AMI system is essentially an integrated system of smart meters, communication networks and meter data management systems that provides a two-way communication system between the utilities and consumer premises equipment. An AMI system is generally composed of smart meters and Head End System (“HES”), which is the host system whose main objective is to acquire meter data automatically and monitor parameters acquired from meters and Meter Data Management System (“MDMS”), which in turn essentially stores huge amounts of data linked with smart meters and concentrators. Further, an AMI system also enables communication between DISCOMs and consumers for the purpose of remote meter reading, connection and disconnection.

The advantages of smart metering are conspicuous; however, the smart metering technology can also be misused and poses serious challenges. For instance, smart metering has the potential to provide detailed information about the householders, which includes the number of family members in a house, sleeping routines, etc. Smart metering and its intricacies are unknown to consumers, for instance, a study showed that only 30 per cent knew that a smart meter could record the time when an individual was out of or in the house. The study also showed that amongst the lower socio-economic groups, only 18 percent of people knew the privacy implications of smart metering.

Enhancing Interoperability to Promote Competition

The Competition Commission of India (“CCI”), in the WhatsApp suo moto case, recognised the importance of data by bringing it within the meaning of the non-price factor of goods and services which can be considered as the quality by which the market competitors compete with one another. Data can be used in order to leverage position in the market by way of understanding the consumer consumption pattern and advertising. This concentration of data can give rise to a competitive advantage to competitors, which is why data is considered to be an essential aspect of competition law. Such an abuse of dominance can be reduced and controlled by interoperability, which is the sharing of data with other competitors by increasing the interconnectivity of various platforms with respect to data exchange.

The interoperability of data in smart meters between the DISCOMs can contribute to healthy competition by promoting a non-discriminatory and transparent procedure while removing entry barriers for new entrants. Further, due to the interoperability of the smart meters, the behaviour of the competitors will change as per the Nash equilibrium theory, which states that the distributors will make the best decision for themselves according to the option preferred by their fellow competitors. No individual distributor would be able to improve its own plan by unilaterally changing it. This can thus reduce bid rigging by DISCOMs and allow new entrants to enter the market. For instance, if one of the distributors lowers its service cost, the other would do the same and based on this, the remaining DISCOSMs would follow suit too and promote competition.

The competition in the energy sector will also help in the efficient and low-cost use of services by the providers and consumers. A number of players would be able to access real-time data services which would help with the overall growth of the energy sector, especially for the distributors. A greater number of players in the market improves the competition as well as the production of goods and services, which in turn provides for a higher amount of local generation by the electricity distributors/DISCOMs and a lower cost of operation for all the players. This aspect also holds true for consumer empowerment as the interoperability of the data will allow greater control in the hands of consumers with respect to switching services in case they are not satisfied, as there would be availability of other providers which in turn will further allow the providers to gain insight as to the demand response of the consumers.

Further, promoting interoperability by way of competitive compatibility would loosen up the dominant enterprises that have a large amount of data and allow a free data flow. Also, the competition in the energy sector would allow users more choices for how their data is to be used. In addition to these perks, interoperability will also help reduce the tie-in arrangements employed by big enterprises, which is the compelling of the purchaser by the seller to purchase one good as a condition for purchasing another good (tied product). This would be reduced as the data which was to be used in order to leverage the position of the big entity concerned would be shared among all of the competitors.

In all, to encourage competition in the energy sector by interoperability, there is a need for a collaborative effort not just by the government but by all the entities in the market concerned, like the regulatory body, standard body, market players, stakeholders etc., as there is a need for integration for the utilisation of new emerging technologies like the smart meters in order to foster competition and encourage innovation. 

The Stumbling Blocks Regarding the Interoperability of Smart Meters in India

The smart meters tender process in the UK involves competitive bidding among the suppliers. The tenders are not solely given on the basis of the highest bidder but on the ability to deliver coupled with the necessary skills and expertise. In the UK, the regulatory framework with regards to the installation of smart meters has been imposed as an obligation with a standard that the meters be capable of interoperability and exchangeability, meaning that the consumers are provided with a lot of freedom for the switching of services, which not only reduces cost but also promotes competition.

The essential feature of the UK energy market is the right of the consumers to select and change their smart metering suppliers. The right of choice of the consumer to switch from one DISCOM to another in itself strengthens the consumer’s right to “opt-out.” The CCI in the WhatsApp Suo Motu case observed that the new privacy policy of WhatsApp does not provide the users with the appropriate choice to object or opt- out of data sharing and such a “take-it-or-leave-it” policy is an abuse of dominant position. Similarly, in India, the Government has not introduced any specific standard that mandates interoperability. Lack of interoperability implies that the customers will be obligated to receive the smart metering services of a single distribution company, which will essentially put the single distributor company in a dominant position. Customers will be left with virtually no option or alternative whatsoever, implying that they will have to agree to share their data with a single distribution company even if they do not want to, and thus cannot exercise their right to “opt-out” of the services of the distributor company. This would not only set hurdles for consumer empowerment with respect to the switching of services but would also crush competition.

A recent study points out the hurdles associated with interoperability in India, and provides that currently there are no standards which mandate interoperability in the country, and that interoperability needs to be achieved through device-level interoperability. Under device-level interoperability, the exchange of data will take place from the meter itself to HES. The study points out that “Usually, HES is capable of communicating with its own set of meters (or the ones that it has collaborated with). Therefore, in the long run, if the DISCOM has to change any existing meter with a new meter of a different make, there is a chance that it would not be interoperable with the HES. This creates a vendor lock-in and a bottleneck for DISCOMs to upgrade the smart metering system” While the device-level interoperability is possible for meters using cellular technology, the interoperability issues exacerbate when device-level operability is to be done through Radio Frequency (“RF”) mesh technology as the RF mesh technology is proprietary considering the meters must be customised according to the requirements of the RF mesh vendor, and therefore interoperability becomes a challenge.

Further, challenges persist when data has to be transferred from HES to MDMS as the MDMS is specific to the HEC system, which acts as a bottleneck for the DISCOMs to upgrade HES or MDMS. Another difficulty with MDMS upgrades is that DISCOMs could have to overhaul their whole current IT setup. Technical dangers, operational bottlenecks, and more cost would therefore be incurred in this. These costs could be substantial and may deter DISCOMs from investing in necessary upgrades, further prolonging the interoperability challenges. This is because an old system can result in system downtime, data loss or billing errors, impeding progress towards a more efficient and consumer-friendly smart metering infrastructure.

The need of the hour is to provide a specific framework which deals with all the issues enumerated above. Further, innovative solutions need to be adopted to resolve these issues. For instance, to achieve interoperability, smart meters need to be equipped so that they support cellular as well as non-cellular (RF Mesh) technology. Also, India’s interoperability system can learn from the UK’s system with regards to data interoperability by opting for the same kind of meter in each household. It is crucial that the smart metering programme in India also provides interoperability in the sharing of data between these meters as well as the technology in the smart meters to work with the new distributor in case there is a switching of services. This can be achieved by selecting the same kind of communication technology based on which the distributor may operate their respective services.

Efficacious interoperability between the distributors through the smart meters can reinvigorate the energy sector in India by promoting access, innovation, and competition in the market. Hence, in India there is a requirement for a robust and overarching data system to promote the interoperability of data in smart meters, in order to reap the benefits of the interoperability of smart meters to help promote competition.

Conclusion

Implementation of smart meters is the right step towards reforming the energy sector in India. However, the Government needs to find innovative solutions to the privacy as well as the competition issues that arise through the implementation of smart meters. Smart meters, if implemented in an efficacious manner, could lead to a major boost to the country’s overall economic growth.