Electricity (Amendment) Bill, 2022 is an assault on the federal structure of the Constitution: People’s Commission on Public Sector and Services

Introducing the Electricity (Amendment) Act, 2022 is yet another example of the Union Government ignoring the states and crossing the Lakshman Rekha of federalism, the People's Commission on Public Sector and Services has pointed out in a press note.

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ON June 30, the People's Commission on Public Sector and Services ('PCPSS'), in a press release, expressed its concerns about the Electricity (Amendment) Bill, 2022 that the Union Government is planning to introduce in the upcoming monsoon session of Parliament.

According to the Commission, the Union Government, a few years ago, had unilaterally enacted the three Farm Laws, in addition to introducing the draft Electricity Act (Amendment) Bill, 2020 to amend the Electricity Act, 2003, without taking state governments and farmers' associations into confidence. Since both the laws and the Bill would adversely affect agriculture and farmers' interests, it led to an agitation by farmers from all over the country, which lasted for months. The Union Government found it expedient to repeal the farm laws, when it could not end the agitation launched by farmers through talks.

Despite the fact that the government had assured that neither the farm laws nor the electricity bill would be revived without prior consultation with all stakeholders, recent reports suggest otherwise. "If this happens, the government would be reneging on its earlier assurances. This is yet another example of how the Centre would be ignoring the States and crossing the lakshman rekha of federalism," the press release issued by the PCPSS stated.

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Bill and its far-reaching implications

The Commission has put forth that the Bill has far-reaching implications on the economy, finances, agricultural and industrial development, and social equity and harmony, which states cannot ignore. The Bill leads to an assault on the federal structure of the Constitution, it said.

Explaining its concerns, PCPSS stated that even though the subject of electricity is placed in the Concurrent List of the Constitution and its entire distribution is with the states, in the reform era commencing from 1996, this sector has been virtually treated as a central subject. States are considered mere vassals as all the policies are made by the Centre and laws are enacted by the Parliament, and for the sake of formalities, so-called consultations are only done with states, the PCPSS has contended.

All the 'reform measures' originate at the Centre and are sent down as directives to the states along with a carrot and stick package, the PCPSS said. "Each and every post-EA-2003 reform measures and schemes were accompanied by stringent conditionalities which state governments had to obey lest they be declared pariah!", the PCPSS noted.

"In the same vein, EB-2022 lays down the reforms in the distribution segment as prescribed by external agencies thereby trampling upon the exclusive jurisdiction of the states. Adoption of these blindly would be against the letter and spirit of the Constitution of India," PCPSS concluded. 

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Specific concerns over the bill

The PCPSS has identified nine specific concerns over the Bill. They are:

• As the Bill introduces the concept of "Distribution Company" instead of "Distribution Licensee", the PCPSS has expressed the concern that companies may get into the electricity distribution business by default. A distribution company would only require registration to trade in electricity, which after 65-70 days of the application, would be deemed to be granted. This, the PCPSS says, is a dangerous prospect, as it can open up the floodgate of corruption and favouritism, and can put the consumers at grave risk. The concept of "Distribution Licensee" would require granting permission to carry out that activity which would require due diligence by the Electricity Regulatory Commission to satisfy itself as to the competence and capacity of the company.
• The Bill provides for multiple private-owned distribution companies to co-exist with state-owned distribution companies. The PPCSS has cautioned that cross-subsidising consumers will shift to private companies while subsidised consumers will remain with government company, leading to a heavy burden on the state exchequer.
• As per the Bill, State Electricity Regulatory Commissions ('SERC') can fix minimum and maximum ceiling of tariff for sale or purchase of electricity in case of shortage of supply. This, according to PCPSS, would create practical problems where SERCs have already issued Multi Year Tariff ('MYT') orders. MYT allows the tariff to not fluctuate beyond a certain threshold.
• The Bill prohibits the regional and state load despatch centres ('RLDCs' and 'SLDCs') from dispatching electricity, if adequate payment security, as agreed in the contract, has not been provided by the distribution licensee. This implies that no electricity would be scheduled and supplied to a state distribution company, unless fully paid upfront. This can have dangerous consequences for states and consumers, according to the PCPSS.
• The Bill imposes harsh penalties for non-compliance with Renewable Power Purchase Obligations as prescribed by the Union Government. This, according to PCPSS, is being done to favour large centralised solar plants owned by corporate business houses and crony capitalists, some charging very high tariffs as per pre-existing PPAs. This, PCPSS claims, would run counter to the energy transition agenda of decentralised and distributed generation, and off-grid supply, particularly to rural consumers.
• The Bill mandatesCentral Electricity Regulatory Commissions to discharge such other functions as may be assigned under the Act or as may be prescribed by the Union Government. PCPSS claims that this vesting of unlimited/undefined powers with the Union Government will severely compromise the functioning of CERCs, making them subordinate entities of the government instead of autonomous bodies. This, PCPSS says, could turn out to be harmful to the interests of the states.
• The Bill substantially usurps the power of the states, and concentrates them with the Union Government and its agencies despite the fact that electricity is a concurrent subject under the Constitution. PCPSS forecasts that with CERC issuing registration for multi-state distribution companies, SERC's role will get drastically reduced while the responsibility of operations and maintenance of the distribution infrastructure would remain with the state.
• The Bill plans to propagate an Open Access at Low Tension consumer level. This would lead to cherry-picking of private players. It may sound reasonable to market fundamentalists, but on a ground level, it may result in potential chaos in the last mile delivery system of the basic services, PCPSS apprehends. Further, the Bill does not clarify who will be responsible to provide infrastructure to new consumers and who would be blamed in case of a delay. There is no clarity as to what happens to existing commercial agreements with consumers. All these will have adverse management and financial impact on existing distribution companies, and an additional legal entity may have to be created to sort out these complex issues as litigation is bound to increase, PCPSS has pointed out.
• Further, the Union Ministry of Power has not yet bothered to explain the reasons for the proposed changes, and their implications on finances of states and their utilities, their likely impact on agriculture and small businesses, and their implications for electricity employees. Besides, states' views have not been sought either.

All these concerns reiterate the need for the Government to consult the concerned stakeholders before taking a decision on the Bill.