This blog essentially discusses the changes proposed in the Electricity Amendment Bill of 2022 and how such changes are likely to impact the players in the electricity sector. The Electricity Amendment Bill 2022 (hereinafter ‘the Bill’) to amend the Electricity Act 2003 (hereinafter ‘the Act’) was tabled in the Lok Sabha on 8th August 2022. This led to a huge uproar amongst the opposition arguing that the bill is violative of fundamental principles of the Constitution. Electricity is enlisted in the Concurrent list of the Constitution. However, as alleged, the state governments were not consulted before tabling the bill in Parliament. Thereafter, the bill was sent to a Parliamentary Standing Committee on Energy for its review.
The bill seeks to bring major changes in the distribution system of the current electricity regime operating in India. Presently, distribution of electricity is a licensed activity, whereby any individual or corporation willing to enter the distribution business must obtain a distribution license from the appropriate commission (the respective state electricity commission). The bill seeks to delicense distribution of electricity whereby anyone willing to enter the distribution business can do so, after complying with certain regulatory guidelines. This way, more corporations can be attracted towards the distribution sector and consequently, increase competition between private bodies and state-owned companies involved in the distribution business. This would result in better realisation of bills from the end users helping in improving the payment cycle of the power sector.
Several Discoms in the Same Locality
Presently, there are hardly even two distributors of electricity in a particular area or locality responsible for supply of electricity (except a few areas in Metropolitan cities). The Act requires the distributor to maintain and operate its own distribution network. The Bill seeks to bring changes in this structure thus delicensing distributorship by amending Section 42 and Section 14 of the Act. Upon delicensing distribution, the bill allows for several discoms to set up their facilities in a particular locality. Further, the mandate for operating a distribution network has been waived off. The Bill proposes indiscriminatory open access whereby, new distribution licensees in an area can use other distribution licensees’ network, upon payment of the stipulated surcharge.
Impact
The Bill has been proposed with an objective of inviting private capital in the distribution sector to reduce the financial burden and improve its efficiency. It is argued by the Government that much like the options available in the telecom sector, the consumers will have multiple options to choose from for their supply of electricity. However, with major corporate giants looking to invest in this sector, soon the distribution sector will be dominated by a select group of corporations competing against one another. The State Governments have been substantially stripped off their powers by allowing multiple private agencies to distribute in one area. As Manish Tewari (Member, Parliament) pointed out, this arrangement will lead to “privatisation of profit and nationalisation of losses.”
Furthermore, it is only the state-owned distributors which have an obligation to supply electricity across all areas. The private agencies look for profit maximisation. Thereby, they will only be looking to set up their facilities in profit making areas and supply to profit making customers (industrial and commercial customers). Soon the state discoms operating in these areas may become obsolete (like BSNL in telecom industry) and supply of electricity in non-profit making areas (rural areas) may be prejudiced.
Minimum and Maximum Tariff Ceilings
The Bill authorises the state commissions to set minimum and maximum ceilings on tariff. This is done with a view to avoid predatory pricing by corporate giants in a particular area and at the same time, protect consumer interest.
Impact
Certain corporate giants, with an objective of gaining wide market range may reduce the tariff at such rates which are not affordable by other distributors operating in that area. In this manner, consumers will be attracted to the lowest pricing, and this will give the corporate an undue advantage and scope for claiming market monopoly over the area. By setting minimum tariff ceilings, the Bill has reduced scope for such unwarranted monopoly by corporate giants.
Further, it is observed in competitive markets that the players align and set high pricing for their products. Because the consumers can only choose amongst the players available, they will be forced to pay high prices for their supply. By setting maximum tariff, the state commissions will determine the maximum price at which electricity can be sold taking into consideration the interest of the consumers.
Empowers NLDC and SLDC to Stop Electricity Supply to Discoms
The distribution sector is the most debt-ridden sector in the power chain. As per Ministry of Power 2020, discoms still owe Rs.67,917 crores to the gencos operating in India. The discoms are not able to pay the gencos on time, who on many occasions are not able to raise enough capital to initiate the generating process. This delays the process of producing and supply of electricity to its destined location. The Bill empowers the National Load Despatch Centre (NLDC) and the State Load Despatch Centres (SLDC) to discontinue supply of electricity to the distribution utilities if they do not maintain adequate bank guarantees with the gencos.
Impact
The inefficiency in the distribution sector has led to disturbance of the whole power chain. This is a measure taken to ensure that discoms pay the gencos on time for their electricity requirement and further ensure that the power chain is not disturbed. However, many state-owned distributors who are debt ridden will be eliminated in such an environment and will lead to the private corporate giants taking control over the sector.
Acceptance of Application
If the regulatory commissions fail to respond to an application for distribution license within 90 days of application, it will be accepted by default.
Impact
The bill proposes this to reduce the complacent approach of the state commissions, and to ensure that all applications are properly attended to. This will result in proper evaluation of all applications and then, to choose the best option available.
Suo-Moto Cognisance
The bill requires that the regulatory commissions will have to take suo-moto cognisance in case the discoms do not file for tariff petitions. They will have to initiate tariff petitions on their own whenever it is required, and upon their failure to do so, they can be terminated from their membership for wilful violation of provisions of the Act.
Impact
This action has been taken in response to the state regulatory commissions’ negligence in establishing the necessary tariff and authorising timely changes. Upon punishing the omission of this act, the Bill has ensured that the state commissions will be alert and diligent in discharging its function of tariff determination.
Balancing Cross Subsidies
Additional Cross Subsidies collected from one category of consumers will be utilised to balance finance deficits of another category of consumers. Simply put, any additional cross subsidy collected from industrial and commercial consumers will be utilised for providing subsidised electricity to the poor.
Impact
These changes will help in furtherance of electrification of the rural and remote areas of the country and help in providing cheaper electricity as per the paying capacity of consumers of such areas.
Renewable Purchase Obligation (RPO
The Act gives SERCs the power to determine Renewable Purchase obligations for Discoms. RPO is the requirement to buy a specific amount of electricity from renewable sources. According to the Bill, the central government will set minimum standards for RPO. Every discom must fulfill the fixed amount of RPO. Failure to satisfy RPO would result in fines ranging from 25 to 50 rupees per kilowatt of the shortage.
Impact
By setting a minimum standard for RPO for the discoms, the Bill encourages, and, in a way, mandates use and promotion of renewable energy keeping in mind the future and the sustainable energy factor. This is a major and pertinent shift in procuring energy from thermal and other depletable sources to non-depletable or renewable sources of energy. However, the central government is to determine the minimum percentage applicable to all discoms operating in the country, without attending to state recommendations.
Recommendations from the states should be considered for the successful implementation of the provisions of the bill because electricity is a subject of the Concurrent List of the Indian Constitution.
