The government sought to usher in some vital reforms in the power distribution sector with the Electricity (Amendment) Bill, 2022. However, the draft bill has faced vehement opposition.
THEElectricity (Amendment) Bill, 2022 was tabled in Lok Sabha on August 8, seeking to amend the Electricity Act, 2003. The bill, first introduced in the Monsoon Session of Lok Sabha by the Ministry of Power aimed to transform the power sector with a special emphasis on bolstering the network for power distribution in the country. However, owing to fervid opposition and demonstrations led by various stakeholders such as power sector employees, power engineers, and the farming community across the country, it was soon referred for scrutiny to the Parliamentary Standing Committee for Energy.
Multiple distribution licensees to operate in the same area of supply: The bill primarily seeks to allow the licensing of multiple distribution companies (‘discoms’) for supply in the same area. The bill further stipulates that the discoms must render “non-discriminatory open access” to its network to other discoms operating in the same area, subject to payment of certain charges. Resultantly, both Section 42 and 14 of the Amended Act allow “competition in retail distribution of power by offering the customers the option to choose electricity suppliers, just like they can choose telephone or internet service providers.”
Procurement of power and tariff: The Bill states that upon the grant of multiple licenses in the same area, the existing discoms’ power and related costs, according to the existing power purchase agreements, is to be shared among all the discoms. Also, in case of multiple discoms in the same area, Section 62 makes a provision that the concerned State Electricity Regulatory Commission (‘SERC’) is required to fix the maximum ceiling and minimum tariff.
It was felt that the proposed legislation is violative of the federal structure as ‘power’, being a subject covered by the Concurrent List of the Seventh Schedule of the Constitution, rendered it mandatory for the Union Government to consult state governments on laws related to the same.
Setting up of a cross-subsidy balancing fund: The Bill sets up an arrangement wherein one consumer category subsidises the consumption of another consumer category. This fund will be employed in financing deficits in cross-subsidy for other discoms in the same or other areas.
Renewable purchase obligation (‘RPO’): The bill warrants SERCs to specify RPOs for discoms, which refer to the mandate of procuring a certain percentage of electricity from renewable sources. Punishment has also been prescribed in case of failure to meet the RPO, with penalty ranging between 25 paise and 50 paise per kilowatt of shortfall.
Grant of license and Union Government’s role: The bill empowers the Central Electricity Regulatory Commission (‘CERC’) to grant licenses, and mandates the Union Government to give directions directly to the SERCs, thus enabling it to bypass state governments.
Strengthened payment security mechanisms: The bill envisages that until adequate payment security is not given by the discoms, electricity shall not be scheduled or dispatched. According to Section 166 of the Act, “It has become necessary to strengthen the regulatory mechanism, adjudicatory mechanism in the Act and to bring administrative reforms through improved corporate governance of distribution licensees”.
Following the introduction of the bill, widespread resistance to its amended provisions came to the forefront in several opposition-ruled states. Primarily, it was felt that the proposed legislation is violative of the federal structure as ‘power’, being a subject covered by the Concurrent List of the Seventh Schedule of the Constitution, rendered it mandatory for the Union Government to consult state governments on laws related to the same.
Even though the scheme of the bill is to encourage competition and transform electricity into a market commodity, such competition is unworkable in the electrical power supply industry.
Also, the clause pertaining to grant of license by the CERC instead of the SERC poses a problematic situation as the latter is likely to be more cognisant of field-level conditions than the former central regulatory commission. The bill, by seeking to make the SERC chairman a nominee of the Union Government, gives a strong impression that the Union Government is trying to control the SERC’s appointments. Therefore, vesting of unlimited powers in the Union Government can have a severe impact on the functioning of regulatory commissions, with them becoming subordinate entities rather than autonomous bodies.
Also, theuniversal service obligation as laid out in the bill only applies to government companies having a responsibility to supply power to consumers regardless of their paying capacity. On the contrary, private players will supply and distribute power only in profitable areas, most significantly to commercial entities or industrial consumers. A regime allowing the new private entrants to use the existing government discoms by paying certain ‘wheeling charges’ is concerning as this results in indiscriminate privatisation.
As Sudip Dutta, working president of the Power Transmission Employees’ and Workers’ Union also elaborates,‘‘The Act itself is problematic as it seeks to de-license power generation and privatisation of State Electricity Boards. It proposes the concept of “open access” with large consumers getting to choose their power suppliers, bypassing distribution companies.” NITI Aayog also stated in its 2021 report that while the presence of private players is noteworthy in cities such as Delhi, Kolkata, Mumbai and so on, in states such as Odisha, wherein four discoms got privatised in 1999, it has been a failure, with hardly any improvement in the distribution system or reduction of losses.
Regardingthe concept of multiple discoms in a single area, Somit Dasgupta, from International Council for Research on International Economic Relations, stated that “[t]he concept of having multiple licensees in one area is not a workable proposition in India where we have large scale cross-subsidy, huge commercial losses etc”. He further elaborated that it is highly unlikely that consumers might be benefitted in case of more than one discom in competition with the other, as around 80 per cent of the costs sustained by the discoms are directed towards the purchasing power from power generating companies. Thus, according to these statistics, the myth of cheaper electricity to consumers seems to be a far-fetched dream.
Further, amongst the many concerns expressed by several power sector associations, the idea of ‘cherry-picking’ of profitable areas by the private players and leaving the loss-incurring ones to the state discoms must be underscored. This means that with entities venturing in lucrative urban areas, the loss-making areas will inevitably be neglected. For farmers, the fear of power subsidies being done away with looms large.
Another bone of contention is that the implications of the bill can put a huge burden on the State exchequer as the cross-subsidising consumers shall move towards private companies offering competitive rates and the subsidised ones shall stay with the government companies. The government discoms will by default go into losses and soon become unable to purchase electricity from generators.
The bill, despite its loopholes, is not regressive in every way. However, its introduction at a time of the ongoing freebies debate, which has resulted in the inability of state discoms to make due payments to power generating companies, poses a huge concern.
There also seems to be the fear of consequences leading to a quagmire of corruption, since if the Electricity Regulatory Commissions fail to grant the license or reject an application within 90 days, companies shall be ‘deemed to have been granted the license’.
In the view of the aforesaid, it is clear that even though the scheme of the bill is to encourage competition and transform electricity into a market commodity, such competition is unworkable in the electrical power supply industry. Moreover, in this respect, an important communication, as also highlighted by The Print, of the French multinational electric utility company, Électricité de France S.A. with the World Bank becomes apposite, wherein it states that as per modern economic theory, competition is rather difficult to be introduced in network infrastructure and even more complex in electricity that in other networks. It further states that “competition does not streamline regulation but makes it on the contrary more complex and burdensome. Introducing competition creates a “half-free, half slavesector”.
Quietening the disquietude and the way ahead
Despite some crucial issues surrounding the bill, the rationale in its favour can also be culled out. The first is pertaining to the compensation of the affected party within 90 days in case of the renegotiation of power purchase agreements by the states. The bill has also envisaged a reduction in time from 120 to 90 days in case of processing tariff petitions. The regulatory commissions have been empowered by suo motu jurisdiction if the said petitions are not filed within the stipulated time. Moreover, safeguards in the form of ensuring a payment security mechanism prior to dispatch have been ensured and the national load dispatcher has been strengthened to facilitate efficient functioning of high renewable capacity grid wherein intermittency of generation is a major obstacle.
Overall, it can be said that the bill, despite its loopholes, is not regressive in every way. However, its introduction at a time of the ongoing freebies debate, which has resulted in the inability of state discoms to make due payments to power generating companies, poses a huge concern. As per government data, states owe discoms Rs. 62,931 crore for services and another Rs. 76, 337 crores pertaining to the cost of freebies announced by them. To untangle this Gordian knot, it is recommended by experts that the regulators must decide upon tariff revisions and ensure that the government freebies must be through direct benefit transfer even on electricity.
Lastly, there is an urgent need for wider consultations on the subject matter of this bill and timely redressal of the concerns raised, which can ensure its effective implementation in the near future. A level playing field for both government and private discoms is the need of the hour.