Powering reforms

Source: The post is based on the article:“Powering reforms”, published in the Business Standard on 10^th August 2022.

“Power plays”, published in The Times of India on 10^th August 2022.

Syllabus: GS 3 Infrastructure; Energy

News: Recently, The Electricity (Amendment) Bill, 2022 was tabled in the Lok Sabha, and it was immediately sent to the Standing Committee on Energy for closer scrutiny and debate.

The subject matter of electricity comes in the Constitution’s concurrent list. Therefore, the Government of India has introduced a bill for reform.

Background- The Electricity Act 2003

The act tried to provide a new architecture to promote competition in a system that was hitherto defined by a maze of cross-subsidies.

The Act tried to foster competition with the open access mechanism, which means a customer is not limited to a single supplier.

Features of the Proposed Bill

It proposes the principle of open access, i.e., the right of consumers to choose their electricity provider, regardless of who controls the physical infrastructure in their locality or state.

The state’s distribution infrastructure can be opened up to all licensees in the area.

It will segregate carriage and content to circumvent the conflict of interest that is faced by the State-DISCOMS due to simultaneous owning of the distribution infrastructure and retail.

There’s also a provision that can lead to trimming the cross-subsidies.

What are the possible challenges in front of the proposed bill and reforms?

Since 2003, a number of attempts have been made to introduce the principle of open access in India. But these efforts died down due to strong opposition and poor drafting.

There are fears that this Bill will die in committee because a number of members of parliament have argued that the bill infringes upon the states’ rights to regulate electricity supply and pricing. It would be an example of the encroachment by the Union government into the state’s regulatory and legal domains.

Further, the Central government has also not consulted the state governments during the drafting of the bill or before its introduction into the lower house. Therefore, the bill may face political backlash during passage in the house.

In the past, open-access provisions were undermined due to exceptions and legal wrangling. For example, earlier only large consumers were able to choose their provider, which reduced the competitive pressures in the power sector.

In 2015, a parliamentary panel said that open access was fairly good in the case of interstate access but unsatisfactory for intra-state.

What should be done?

The Union government is competent to introduce the bill because electricity is on the Concurrent List of the Constitution.

The principle of open access would lead to competition, and the poorly-performing state electricity utilities may turn into better-performing providers in the coming years.

The power subsidies should be transparently provided and not through cross-subsidization within the public-sector power company (state-owned DISCOMS. The cross-subsidies cause inefficiency and reduce competitiveness