The Electricity Amendment Bill, 2022: Provisions, Benefits and Concerns – Explained, pointwise

Introduction

The Electricity (Amendment) Bill, 2022 was introduced in the Lok Sabha in the Monsoon Session (2022) of the Parliament. The Bill amends the Electricity Act, 2003. The 2003 Act regulates the electricity sector in India. Through this Bill, the Government intends to bring several reforms in the electricity sector through this Amendment Bill including the principle of open access. Some provisions of the Bill have been opposed by several stakeholders including the opposition political parties, some State Governments and a section of farmers. The Bill has been referred to the Parliamentary Standing Committee for further discussions.

What are the major issues in the electricity sector?

Financial Health of State Discoms (Distribution Companies): Years of populist tariff schemes, mounting Average Technical and Commercial (AT&C) losses and operational inefficiencies have adversely affected the financial health of State Distribution Companies (Discoms). The AT&C loss in distribution was 21% (2019–20) and Discoms incurred a loss of INR 867 billion after accounting for support of INR 1.1 trillion from the government. As of August 2022, Discoms have accumulated overdue, unpaid bills of INR 1.37 trillion.

According to latest government data, Discoms of 3 states — Tamil Nadu, Maharashtra and Telangana – are yet to pay about 57% of the total dues owed to power generating companies

Fuel Security Concerns: Coal supplies by Coal India Limited is limited to ~65% of actual coal requirement by coal based thermal plants. It leads to increased dependence on imported coal (at higher price) with the cascading result of high power generation costs.

Under-procurement of Power by States: Increasing power generation costs due to limited fuel availability, poor financial health of State Discoms, high AT&C losses have contributed in suppressed demand projections by State Discoms.

Higher Financing Costs: Over the last few years, the leading rates (by banks) to power sector have increased significantly in comparison to the rates at the time of project conception and appraisal. This has resulted in project cost overrun and hence higher end tariffs.

The Government has tried to undertake reforms in the sector for quite some time. With this Amendment Bill, the Government has tried to reform both the demand (consumer end) and supply side (distributor end).

What are the salient provisions of the Electricity Amendment Bill, 2022?

Multiple discoms in the same area: The Electricity Act provides for multiple discoms to operate in the same area of supply. It requires discoms to distribute electricity through their own network. The Bill removes this requirement. Discom must provide non-discriminatory open access to its network to all other discoms operating in the same area, on payment of certain charges.

Cross-subsidy Balancing Fund: Upon grant of multiple licenses for the same area, the State government will set up a Cross-subsidy Balancing Fund. Any surplus with a discom on account of cross-subsidy will be deposited into the fund. The fund will be used to finance deficits in cross-subsidy for other discoms in the same area or any other area.

The matters related to the operation of multiple discoms in the same area will be regulated in accordance with the rules made by the Union Government under the Act.

License for distribution in multiple states:  The Central Electricity Regulatory Commission (CERC) will grant licenses for distribution of electricity in more than one State.

Payment security: Electricity will not be scheduled or despatched if adequate payment security is not provided by the discom. The Union Government may prescribe rules regarding payment security.

Contract enforcement: The Bill empowers the CERC and State Electricity Regulatory Commissions (SERCs) to adjudicate disputes related to the performance of contracts (related to sale, purchase, or transmission of electricity).

Renewable purchase obligation:  The Act empowers SERCs to specify renewable purchase obligations (RPO) for discoms. RPO refers to the mandate to procure a certain percentage of electricity from renewable sources. The Bill adds that RPO should not be below a minimum percentage prescribed by the Union Government.  Failure to meet RPO will be punishable with a penalty between 25 paise and 50 paise per kilowatt of the shortfall.

Power procurement and tariff: Under the 2003 Act, in case of multiple discoms in the same area of supply, the SERC is required to specify the maximum ceiling for tariff. The Bill adds that the SERC will also specify a minimum tariff for such cases.

What are the perceived benefits of the Electricity Amendment Bill, 2022?

First, the provision of open access allows consumers to choose their electricity supplier. This will enhance competition between discoms. Increased competition will prompt them take steps to be more efficient (like taking steps to cut down commercial losses by better metering). The ultimate beneficiaries will be the consumers.

Second, the focus of the Government has been shifting from providing electricity connections to ensuring enhanced quality of supply, particularly in terms of hours and predictability of supply and steady voltage level. This Electricity Amendment Bill with its focus on discoms competition will help fulfil universal service obligations to provide last mile connectivity and supply.

Third, the Bill aims to promote renewable energy by requiring the SERCs to set the renewable purchase obligation of discoms within a new range set by the Union Government.

Fourth, the Bill makes provision for mandatory fixing of minimum as well as maximum tariff ceilings. This will help curb predatory pricing by power distribution companies and to protect consumers.

Fifth, the Electricity Amendment Bill has several provisions to ensure graded and timely tariff revisions. This will help provide discoms enough cash to be able to make timely payments to power producers. This move is aimed at addressing the recurrent problem of default by discoms in payment to generation companies.

Sixth, the payment security mechanism will ensure power generators receive payments on time. This will solve their cash flow problem (due to delay in payments by discoms). The producers can, in turn, make timely payments to Coal India for procurement of coal and avert power crisis that were witnessed recently.

Seventh, establishment of cross-subsidy balancing fund will ensure that the current subsidy mechanism is not disrupted (higher tariff for commercial sector and lower for domestic).

What are the concerns associated with the Electricity Amendment Bill, 2022?

The Bill has been opposed by opposition parties, several State Governments and some farmer bodies. The following are their concerns:

First, State Governments are concerned that certain provisions of the Bill encroach on their rights. Electricity is a subject under the Concurrent List (Item 38, List III (Concurrent) of Seventh Schedule), so the Union Government is well within its rights to enact a law. However, some concerns of the State Government are valid: (a) Power to CERC to grant license for distribution of electricity in more than one State. SERCs have better understanding of ground conditions; (b) The Union Government can give directions to the SERCs, (c) The Union Government will specify the minimum percentage of RPOs which was earlier decided by the SERCs; (d) The Bill makes changes in the the composition of the committee for selection of Chairperson/members of the SERCs. The Committee will now have a nominee of the Union Government.

Second, the Opposition parties have criticized the Bill arguing that  that privatization will benefit private discoms at the cost of consumers.

Third, Farmers’ organisations worry that the Bill will result in the end of subsidies to the farm sector.

Fourth, workers’ union in the power sector [All India Power Engineers Federation (AIPEF), fear loss of jobs and hence opposing the Bill.

Fifth, there is lack of clarity on certain aspects related to operations. It is not clear how maintenance and upgradation of infrastructure will be undertaken given that multiple discoms will be using the same infrastructure.

What should be done going ahead?

The Bill has been referred to the Parliamentary Standing Committee. There should be proper deliberations to incorporate views of all stakeholders. The concerns raised by the State Governments are valid and should be appropriately addressed.

The Government has taken several steps to alter the electricity mix and improve the share of renewable energy. However, there has been lack of effort in upgrading the infrastructure to ensure sustainable uptake of the electricity generated by the renewable sector. The lacunae must be addressed expeditiously.

Conclusion

The Electricity Amendment Bill, 2022 has brought in several welcome reforms in the sector. However, the concerns related to the Bill must be addressed. The Bill would help in achieving India’s dream of providing 24*7 electricity to all its citizens, achieving a 5 trillion economy, achieving sustainable development goals, and fulfilling their obligation of Intended Nationally Determined Contributions (INDC) under the Paris Agreement.

Syllabus: GS III, Infrastructure: Energy

Source: Indian Express, Indian Express, The Hindu, ORF, Business Standard