Draft Electricity (Amendment) Bill 2021

In News

• Recently, the draft Electricity (Amendment) Bill, 2021 has been sent to the Cabinet Secretary for further consideration.

Need for Amendments

• Inefficient Discoms: For years, electricity distribution has remained the sorepoint in the country’s power network. Although States unbundled the vertically integrated State Electricity Boards into generation companies and distribution companies (discoms) to promote competition and efficiency, the discoms have, by and large, remained under the control of the States.
• Huge Losses: At the end of June 2021, the discoms owed over ?90,000 crore to power producers. Thirty Six out of 56 discoms reported aggregate losses of around ?32,900 crore as on March 31, 2020.
• Poor Governance: The discoms are struggling with structural challenges in governance and regulation.
• Chronic Issues: There are chronic problems of underinvestment, line losses and issues in billing, metering, and collection.

Key Points of the Amendment

• The broad objectives of the Bill are:
  • To ensure consumer centricity,
  • To promote ease of doing business,
  • To enhance sustainability of the power sector
  • To promote green power.
• The draft Bill has covered nearly a dozen areas, such as distribution franchise andsublicence, subsidy, and cost reflective tariff.
• Among the remedies presented by the government through the initiative are:
  • direct benefit transfer (DBT) of subsidies,
  • reduction of cross subsidies,
  • role for distribution sublicensees with regulators’ nod,
  • the adoption of a national renewable energy policy
  • the establishment of the electricity contract enforcement authority.

• Choice to Consumers:
  • Electricity distribution is delicensed, at least in the letter, giving consumers a choice to choose a distribution company in their area.
• Universal Service obligation Fund:
  • There is the provision of a universal service obligation fund, which shall be managed by a government company.
  • This fund shall be utilised to meet any deficits in cross-subsidy. In case of supply through pre-paid meters, security deposit will not be required.
• Appellate Tribunal for Electricity (APTEL):
  • The APTEL is being strengthened by an increasing number of members.
  • The domains from where the chairperson and members of Central Electricity Regulatory Commission (CERC) and State Electricity Regulatory Commissions (SERC) will come have been described.
• National climate change goals considered:
  • Keeping in view the national climate change goals, the responsibility of fixing renewable power obligation (RPO) is shifted from state commissions to the central government.
• Role of dispatch centres:
  • The role of load dispatch centres is gaining importance as the interconnected power system is getting more complex with the addition of renewable generators.
• Dispatch disputes:
  • At the same time, disputes related to the despatch of power are increasing, adjudication of load dispatch centres related disputes have been included in the functions of regulatory commissions.
• Strengthened regulatory commissions:
  • The regulatory commissions were earlier called ‘toothless tigers’ by some. Their orders will now be executable as decree including attachment of property, arrest and detention in prison.
  • With Law members in the commission, these powers will be exercised appropriately, resulting in better enforcement.
• Penalty:
  • Penalty for contravention of the provisions of the Act has been increased up to Rs 1 crore. Non-fulfilment of RPO will attract stringent penalties as per the proposed amendments.

Reasons for Opposition

• Financial Losses: The States feel that a greater role for private distribution companies and franchises would only lead to cherry picking of remunerative areas by them, leaving it to the State discoms to serve social sector obligations and rural areas that may lead to financial losses.
• Disturbs Federal Balance: The proposed delicensing of distribution has unnerved many States. They argue that the amendment strikes at the root of the federal structure.
• Profiteering: The objective of providing choices to the consumers would end up in profiteering by new service providers through tariff hikes.
• Replacing Farm Subsidies: The draft Bill is also being opposed by many political parties and farmers on the ground that DBT will do away with the heavily subsidised or free power supply to the farm sector.
• Problems with Hydropower: One of the complaints of Tamil Nadu against the draft Bill is that hydro power purchase obligation cannot be fixed separately as hydropower generation is seasonal, monsoon dependent and not in the control of its discom.
• Low cost recovery: Discoms are unable to recover their costs, out of which nearly 75-80 per cent are power purchase costs.
  • There is no regulatory intervention to fix coal costs and railway freight.
• High Fixed cost for unutilised power: These costs have increased much more than the weighted average increase of wholesale price index and retail price index.
  • No win-win solution (to power distribution and generation companies) are offered to reduce the fixed cost of unutilised power through the amendment bill.
• Huge AT&C losses: According to a report released by the distribution utility forum based on Uday dashboard in 2020, the Aggregate Technical & Commercial (AT&C) losses of 12 states were more than 25 per cent and of six states between 15 and 25 percent.

Dues of discoms to generation companies (in Rs crore (Image Courtesy: DTE )

Way Ahead

• Provisions for power market development, market-based economic despatch and gross bidding in the amendment bill could have paved the way for next-generation reforms.
• Provisions to avoid an increase in discom viability gap and at the same time to prevent an abnormal increase in tariff may have been included in the amendment bill, at least as a lighthouse to guide navigation for reforms.
• Some of the issues that may be considered for holistic power sector reforms:
  • The provision of coal and railway freight regulators
  • Linkage of AT&C losses as key performance indicator for release of central funds to states by any ministry
  • Provision of a risk management committee and corporate governance within discoms, irrespective of being listed company
• The commissions should be built as strong institutions and their autonomy should be respected and maintained.
• After providing a robust framework for fair competition, the government should minimise its frequent interventions in the sector.
• Electricity regulatory commissions hold the key to take the power sector forward.

Source: TH