Electricity (Amendment) Bill 2020 "EMPOWER IAS"

 

Context

• Most discoms are deep into the red as high aggregate technical and commercial (AT&C) losses are chipping into their revenues. Against this backdrop, the Electricity (Amendment) Bill of 2020 is a game-changing reform.

 

Key Objectives:

• Ensure consumer centricity,
• Promote Ease of Doing Business,
• Enhance sustainability of the power sector,
• Promote green power,

 

Need for this bill

• 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.

 

 

Why the Electricity (Amendment) Bill of 2020 is a game-changing reform

• De-licensing power distribution: This will provide the consumers with an option of choosing the service provider, switch their power supplier and enable the entry of private companies in distribution, thereby resulting in increased competition.
• In fact, privatisation of discoms in Delhi has reduced AT&C losses significantly from 55% in 2002 to 9% in 2020.
• Open access for purchasing power: Open access for purchasing power from the open market should be implemented across States and barriers in the form of cross-subsidy surcharge, additional surcharge and electricity duty being applied by States should be reviewed.
• Issue of tariff revision: The question of tariffs needs to be revisited if the power sector is to be strengthened.
• Tariffs ought to be reflective of the average cost of supply to begin with and eventually move to customer category-wise cost of supply in a defined time frame.
• This will facilitate a reduction in cross-subsidies.
• Inclusion in GST: Electrical energy should be covered under GST, with a lower rate of GST, as this will make it possible for power generator/transmission/distribution utilities to get a refund of input credit, which in turn will reduce the cost of power.
• Use of smart meters: Technology solutions such as installation of smart meters and smart grids which will reduce AT&C losses and restore financial viability of the sector.
• The impetus to renewable energy: The impetus to renewable energy, which will help us mitigate the impact of climate change, is much needed.
• Despite its inherent benefits, the segment has shown relatively slow progress with an estimated installed capacity of 5-6 GW as on date, well short of the 2022 target.
• The Bill also underpins the importance of green energy by proposing a penalty for non-compliance with the renewable energy purchase obligations which mandate States and power distribution companies to purchase a specified quantity of electricity from renewable and hydro sources
• Strengthening the regulatory architecture: This will be done by appointing a member with a legal background in every electricity regulatory commission and strengthening the Appellate Tribunal for Electricity.
• This will ensure faster resolution of long-pending issues and reduce legal hassles.
• Authority for contractual obligation: Provision in the Bill such as the creation of an Electricity Contract Enforcement Authority to supervise the fulfillment of contractual obligations under power purchase agreement, cost reflective tariffs and provision of subsidy through DBT are commendable.

 

Important issues not addressed

• Recovery of dues: 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 percent are power purchase costs.
• Tariff: A broad guideline to reduce tariffs could have been part of the proposed amendment bill. Recently, the Forum of Regulators came out with a report on cost elements of tariff and suggested measures to reduce the same.
• AT&C losses: The Aggregate Technical & Commercial (AT&C) losses of 12 states were more than 25 percent and of six states between 15 and 25 percent, according to a report released by the distribution utility forum based on Uday dashboard in 2020.

 

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.

 

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.