Powering the energy sector: Electricity (Amendment) Bill

Context:

The Electricity (Amendment) Bill of 2020 is a game-changing reform which will set the process of de-licensing power distribution after the monopoly of the state is dismantled.

Relevance:

GS-III: Industry and Infrastructure (Energy Sector, Sources of Energy, Types of Resources and Sustainable use of Resources), GS-II: Governance (Government Interventions and Policies, Issues arising out of the design and implementation of Government Policies)

Dimensions of the Article:

1. About the Electricity Sector in India
2. Highlights of the Draft Electricity (Amendment) Bill, 2020
3. Key Issues and Analysis Draft Electricity
4. Way Forward

About the Electricity Sector in India

• The electricity sector could be classified into three segments:
  1. Generation: Generation is the process of producing power using different sources of energy.
  2. Transmission: High voltage power is carried from the generation plants to the distribution sub-stations through a transmission grid. 
  3. Distribution: Electricity is finally transferred from the sub-stations to individual consumers through a distribution network. 
     The Electricity Act, 2003 is the central law regulating the electricity sector.
• The Electricity Act, provides for Electricity Regulatory Commissions at both the central and state levels (CERC and SERCs) – whose functions include:
  1. regulating and determining tariff,
  2. issuing licenses for transmission, distribution, and electricity trading, and
  3. adjudicating upon disputes, within their respective jurisdiction

Issues faced by the electricity sector

• One of the key concerns in the power sector has been the financial health of the distribution companies (discoms), which are mostly state-owned.
• Discoms have had a high level of debt and have been running losses for the past several years.
• The Ujwal Discom Assurance Yojana (UDAY) was launched in 2015 to bring financial and operational turnaround of discoms.
• Underpricing of tariff, and high technical and commercial losses (including theft and billing issues) are some of the major reasons for financial issues of the discoms.

Highlights of the Draft Electricity (Amendment) Bill, 2020

• The Bill provides for the constitution of Electricity Contract Enforcement Authority (ECEA).  The ECEA will have sole authority to adjudicate upon specified contract-related disputes in the electricity sector.
• A common selection committee will be constituted to select the chairperson and members of the Appellate Tribunal (APTEL), the central and state regulatory commissions (CERC, SERCs), and ECEA.
• Currently, SERCs are required to specify regulations to progressively reduce cross-subsidy.  The Bill requires them to adhere to the National Electricity Tariff Policy while determining the cross-subsidy.
• Government subsidy will not be accounted for while determining the tariff.  Such subsidy will be provided directly to consumers.
• The Bill adds that a franchisee will be authorised with the information given to the SERC.  The Bill provides for a new entity called Distribution Sub-licensee.  A distribution licensee can authorise a sub-licensee to distribute electricity on its behalf with the prior permission of the SERC.
• State and regional load despatch centres will not schedule or despatch electricity if the distribution licensee has not provided adequate payment security, as agreed in the contract.
• The Bill empowers the central government to notify a National Renewable Energy Policy in consultation with state governments and prescribe minimum renewable and hydro purchase obligation.

Key Issues and Analysis Draft Electricity

• The proposed common selection committee will have chief secretaries of two states as members, by rotation.  A concerned state may not have a representative in the committee when recommending appointments to its SERC.  The question is whether this undermines a state’s powers to appoint its regulator.
• The proposed selection committee will also recommend appointments to the Appellate Tribunal.  The composition of the proposed selection committee is contrary to the principles laid out by the Supreme Court to safeguard the independence of tribunals.
• The Draft Bill requires the SERCs to adhere to the National Electricity Tariff Policy for determining cross-subsidy.  The question is whether matters of cross-subsidy should be determined by a uniform National Policy or continue to be determined by the SERCs.
• A distribution licensee can authorise a franchisee as well as a distribution sub-licensee to distribute electricity on its behalf.  There is a need for clarity on the role of a franchisee and a distribution sub-licensee.

Way Forward

• The Bill will set the process of de-licensing power distribution after the monopoly of the state is dismantled and this will provide the consumers with an option of choosing the service provider, switch their power supplier and enable the entry of private companies in distribution, thereby resulting in increased competition. (Success Story example: privatisation of discoms in Delhi has reduced AT&C losses significantly from 55% in 2002 to 9% in 2020.)
• Open access for purchasing power from the open market should be implemented across States and barriers in the form of cross subsidy surcharge, additional surcharge and electricity duty being applied by States should be reviewed.
• Tariffs ought to be reflective of average cost of supply to begin with and eventually move to customer category-wise cost of supply in a defined time frame. This will facilitate reduction in cross subsidies.
• Electrical energy should be covered under GST, with a lower rate of GST, as this will make it possible for power generator/transmission/distribution utilities to get a refund of input credit, which in turn will reduce the cost of power.
• Another possible way forward is the use of technology solutions such as installation of smart meters and smart grids which will reduce AT&C losses and restore financial viability of the sector.

Push for renewal energy through the bill

• Encouraging roof-top solar plants is a viable step to provide the much-needed impetus to renewal energy, which will help us mitigate the impact of climate change.
• Strengthening of the regulatory architecture of the renewable sector by appointing a member with a legal background in every electricity regulatory commission and strengthening the Appellate Tribunal for Electricity through the draft bill – is a welcome step.
• As another positive outlook – the Bill also underpins the importance of green energy by proposing a penalty for non-compliance with the renewable energy purchase obligations which mandate States and power distribution companies to purchase a specified quantity of electricity from renewable and hydro sources.

-Source: The Hindu