Electricity (Amendment) Bill, 2021 "EMPOWER IAS"

 

In news:

• The Electricity (Amendment) Bill, 2021 will be introduced and is likely to be pushed for passage in the ongoing monsoon session of Parliament.

 

A relief for Discoms

 

 

 

• Electricity distribution is at the cutting edge of the power sector.
• Despite the last 25 years of power sector reforms, the electricity distribution companies are unable to pay the generation and transmission companies as well as banks / financial institutions due to poor financial health.
• In this situation, patchwork may not turn around the power sector and a holistic approach is the need of the hour.
• The provisions of the proposed amendment bill have to be seen in this context.

 

Key features of Electricity (Amendment) Bill, 2021

• De-licensing: Electricity distribution is delicensed, at least in the letter, giving consumers a choice to choose a distribution company in their area.
• Universal service obligation: There is the provision of a universal service obligation fund, which shall be managed by a government company.  This fund shall be utilized 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): It 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.
• Renewable Power Obligation: Keeping in view the national climate change goals, the responsibility of fixing renewable power obligations (RPO) is shifted from state commissions to the central government.
• Penalty: Penalty for contravention of the provisions of the Act has been increased up to Rs 1 crore. Non-fulfillment of RPO will attract stringent penalties as per the proposed amendments.

 

Concerns

• Discoms collect revenue from the consumers and feed the supply chain upstream. They are, however, unable to recover their costs, out of which nearly 75-80 per cent are power purchase costs. 
• Recently, the Forum of Regulators came out with a report on cost elements of tariff and suggested measures to reduce the same. But there is no regulatory intervention to fix coal costs and railway freight. 
• The Aggregate Technical & Commercial (AT&C) losses of 12 states were more than 25 per cent and of six states between 15 and 25 per cent, according to a report released by the distribution utility forum based on Uday dashboard in 2020. 
• Power distribution is proposed to be delicensed. However, the eligibility criteria shall be prescribed by the central government and the conditions for registration by the SERC. 
• There is a provision for amendment and cancellation of registration as well. In case these provisions are implemented similar to a license, the purpose shall be defeated. 
• The newly registered companies are given the facility to use the power allocation as well as the network of existing discom, which may be dilapidated in many cases due to paucity of funds. With such a network, the quality of supply to the electricity consumers will be seriously affected.
• Financial penalty on discom may not fully compensate and satisfy the consumers in such cases. By way of amendment, a fourth member is added to CERC and SERC, who should have qualifications and experience in the field of economics, commerce, public policy / public administration or management. 
• 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
  • Fourteen years after the last amendment to the Electricity Act, currently, the focus of the amendment is on competition and compliance. Electricity regulatory commissions hold the key to take this forward. 

 

 

Some provisions may backfire

• Power distribution is proposed to be delicensed. However, the eligibility criteria shall be prescribed by the central government and the conditions for registration by the SERC.
• There is a provision for amendment and cancellation of registration as well. In case these provisions are implemented similar to a license, the purpose shall be defeated.
• The newly registered companies are given the facility to use the power allocation as well as the network of existing discom, which may be dilapidated in many cases due to paucity of funds.
• With such a network, the quality of supply to the electricity consumers will be seriously affected.
• Financial penalty on discom may not fully compensate and satisfy the consumers in such cased.

 

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

 

Way forward

• Fourteen years after the last amendment to the Electricity Act, currently, the focus of the amendment is on competition and compliance.
• Electricity regulatory commissions hold the key to take this forward.
• 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 minimize its frequent interventions in the sector.
• The government interventions often distort the market and maybe resorted to only in case of market failure.