Power hurdles: Consumers need to wait before they can choose supplier

Source: Business Standard

Relevance: Challenges ahead of draft Electricity Bill, 2021.

Synopsis: The latest amendments to the Electricity Act, 2003 seek to abolish the power distribution license. Further, it will allow any company to supply electricity in an area. However, these amendments might not be enough to remove existing obstacles in the power sector.

Background:

• The amended Electricity Bill, 2021 will be tabled in the current monsoon session of the Parliament. 
• With this, the centre plans to end the monopoly of existing discoms, which are mostly state-owned entities, by amending the Electricity Act, 2003.

About Electricity Bill, 2021:

• Section 24 (A) states that any company may supply electricity to consumers in its area of supply. It can do so using its own distribution system or using the distribution system of another distribution company. 
  • However, the company should fulfil the prescribed qualifications and must register itself with the Appropriate Commission.
• The Bill has replaced the term ‘distribution licensee’, and replaced it with ‘distribution company’. 
• It has also allowed two or more discoms to register and distribute electricity in the same areas. 
• Existing power purchase agreements would be shared by all discoms in an area. Companies could also sign additional power purchase agreements.

Providing consumers the right to choose their preferred power supplier would be challenging even after the amendments to the Electricity Act.

Challenges: 

• First, there is a scarcity of multiple power distribution companies (discoms) in several states. Currently, it is only in Delhi and Mumbai that there are more than one discom. 
• Second, there is little interest in the privatisation of discoms in several states. In Uttar Pradesh, Rajasthan, Haryana, etc., there are more than one state-owned discom, but their area of supply is exclusive to them. 
  • None of these states have awarded private distribution licenses. It is only in Odisha that a private distribution licence award has been a success after a mega failure.
• Third, there are no overarching regulations to support the proliferation of a dynamic electricity retail market.
  • For instance, when consumers switched to Tata from Reliance in Mumbai, the company paid wheeling charges to Reliance infra.
  • The consumers were directed to pay cross-subsidy charges and regulatory assets charges under a 2014 order of the Appellate Tribunal for Electricity. 
  • This became a disincentive for residential consumers to change their discom, however, industrial consumers continued to change over to Tata.
• Fourth, in many cases, protests and complex litigation are causing a delay in privatising the discoms.
  • The finance minister last year in her Covid relief package announced that discoms of all union territories would be privatised.
  • Chandigarh and Dadar and Nagar Haveli and Daman and Diu since then floated tenders for discom privatisation but it has not met with success. 
  • All the tenders are facing legal petitions by either employees or individuals protesting against the privatisation bid. In the case of Chandigarh, the bidders have challenged the terms of bidding.