Electricity Amendment Bill 2022: Pros & Cons

Context

• Recently, the government introduced the Electricity Amendment Bill 2022 in the Lok Sabha. The Bill is under consideration of the Parliamentary Standing Committee.

About

• The Electricity (Amendment) Bill, 2022 amends the Electricity Act, 2003 which regulates the electricity sector in India.  
• It sets up the Central and State Electricity Regulatory Commissions (CERC and SERCs) to regulate interstate and intrastate matters, respectively.  

Key provisions under the Bill

• Multiple discoms in the same area:  
  • The Act provides for multiple distribution licensees (discoms) to operate in the same area of supply.  
  • The Act requires discoms to distribute electricity through their own network.  The Bill removes this requirement. 
  • It adds that a discom must provide non-discriminatory open access to its network to all other discoms operating in the same area, on payment of certain charges.  
  • The central government may prescribe the criteria for determining the area of supply.
• Power procurement and tariff: 
  • Upon grant of multiple licenses for the same area, the power and associated costs as per the existing power purchase agreements (PPAs) of the existing discoms will be shared between all discoms.
  • To meet any additional power requirements, a discom may enter into additional PPAs after meeting the obligations of existing agreements.  
  • Such additional power need not be shared with other discoms.  
  • Under the 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.
• Cross-subsidy Balancing Fund: 
  • The Bill adds that upon grant of multiple licenses for the same area, the state government will set up a Cross-subsidy Balancing Fund.  
  • Cross-subsidy refers to the arrangement of one consumer category subsidising the consumption of another consumer category.  
  • Any surplus with a distribution licensee 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 Bill specifies that the above matters related to the operation of multiple discoms in the same area will be regulated in accordance with the rules made by the central government under the Act.
• License for distribution in multiple states:  
  • As per the Bill, the CERC will grant licenses for distribution of electricity in more than one state.
• Payment security: 
  • The Bill provides that electricity will not be scheduled or despatched if adequate payment security is not provided by the discom. 
  • The central government may prescribe rules regarding payment security.
• Contract enforcement:
  • The Bill empowers the CERC and SERCs to adjudicate disputes related to the performance of contracts.  
  • These refer to contracts related to the sale, purchase, or transmission of electricity.  Further, the Commissions will have powers of a Civil Court.
• 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 central government.  
  • Failure to meet RPO will be punishable with a penalty between 25 paise and 50 paise per kilowatt of the shortfall.
• Selection committee for SERCs: 
  • Under the Act, the Chairperson of the Central Electricity Authority or the Chairperson of the CERC is one of the members of the selection committee to recommend appointments to the SERCs.  
  • Under the Bill, instead of this person, the central government will nominate a member to the selection committee.  The nominee should not be below the rank of Additional Secretary to the central government.
• Composition of Commissions and APTEL: 
  • The Bill increases the number of members (including the chairperson) in SERCs from three to four. 
  • Further, at least one member in both the CERC and SERCs must be from a law background. 
  • Under the Act, Appellate Tribunal for Electricity (APTEL) consists of a chairperson and three other members.
  • The Bill instead provides that the APTEL will have three or more members, as may be prescribed by the central government.

Pros of Amendment Bill

• States are given opportunities: 
  • The first relates to states reneging on power purchase agreements (PPAs), especially those with renewable power producers. Renegotiation of such PPAs has become a fraught issue. 
  • The Bill states that if PPAs are renegotiated, the affected party has to be compensated within 90 days from the date of submission of the petition.
• New tariffs:
  • They have to be made applicable from the beginning of the financial year. 
  • New tariffs often come into force in the middle of the financial year (due to delays in the issuing of orders by SERCs). 
• Faster Disposal: 
  • The Bill has proposed a reduction in the time for processing tariff petitions from 120 days to 90 days. 
• Powers to Regulatory commissions: 
  • Regulatory commissions have been given suo motu jurisdiction if tariff petitions are not filed within 30 days of the stipulated time. 
• Payment security: 
  • The Bill talks about ensuring a payment security mechanism before dispatch. This will ensure that dues to generators do not swell up to unmanageable levels. 
• More powerful load dispatcher: 
  • The Bill proposes to give more teeth to the national load dispatcher.
  • There was a need to strengthen the load dispatcher for the smooth functioning of the grid, especially with a huge renewable capacity — where intermittency of generation is a major issue — in the offing.
• Consumer Rights protected: 
  • In the past, only large consumers were able to choose their provider. With this new Bill, consumer rights must be respected through a principle like open access and that its application is overdue. However, consumer choice will mean that poorly-performing state electricity utilities could end up being shunned in favour of their better-performing counterparts.

Cons of Amendment Bill

• Authority: 
  • It states that the Central Electricity Regulatory Commission (CERC), and not the SERC, will grant the license. 
  • This is problematic because a SERC is likely to be more aware of the field-level conditions in a state than its central counterpart. 
  • Even if an applicant applies for licenses in several states, they should be processed by the SERCs concerned — wherever necessary, these agencies should consult each other. Moreover, the agency that grants the license should also administer it.
• Center is made powerful: 
  • The Bill has a provision empowering the Centre to give directions directly to the SERCs. 
  • Till now, the CERC received instructions from the Centre and the SERCs were under the state. 
  • The new Bill enables the Centre to bypass state governments. It’s not surprising that this is a matter of concern for the states.
• Selection committee: 
  • The Bill has made a small change in the composition of the committee for selection of Chairman/members of the SERCs (amendment of section 85). 
  • Instead of having Chairman CEA/Chairman CERC as the third member, it will now be a nominee of the central government at the level of additional secretary.
• Fears lie in actions: 
  • The enactment of the Electricity (Rights of Consumers) Rules, 2020 aggravated the fears. These rules spoke of matters solely related to distribution which, no doubt, is a state subject.
• Buyer and provider are same: 
  • A government department transmitting, distributing or trading in electricity will be deemed as a licensee under the Act. 
  • Since the railways was never transmitting, distributing or trading in electricity but was a bulk consumer, it should not have qualified to be a deemed distribution licensee. 
  • The railways do not perform several other tasks expected of a distribution licensee. The submission of a tariff petition for instance. 
  • The exception made for the railways had led to demands for a similar license from entities such as the metro rail and ports.

How Amendments could cater the demand?

• Payment security: The bill through amendments in Section 166 of the Act also seeks to strengthen payment security mechanisms and give more powers to regulators. It has become necessary to strengthen the regulatory mechanism, adjudicatory mechanism in the Act and to bring administrative reforms through improved corporate governance of distribution licensees.
• Timely revisions of tariffs: The amendment Bill has several provisions to ensure graded and timely tariff revisions that will help provide state power utilities enough cash to be able to make timely payments to power producers. This move is aimed at addressing the recurrent problem of default by distribution companies in payment to generation companies.
• Consumer choice: The Bill will amend Sections 42 and 14 of the Electricity Act, thus, enabling competition in retail distribution of power by offering the customers the option to choose electricity suppliers, just like they can choose telephone or internet service providers. 
• Tariff ceilings fixed: The Bill will amend Section 62 of the Act. It will make provision for mandatory fixing of minimum as well as maximum tariff ceilings by the appropriate commission to avoid predatory pricing by power distribution companies and to protect consumers.

Way Forward

• Direct Benefit Transfer has helped in various other projects so it will be healthy to try it in the Electricity department as well.
• Private players should be properly regulated.
• It should be taken into consideration that Electricity is a subject in Concurrent List so both Center as well as States can make laws on it.

Source: IE