Glimmer of Hope: Electricity amendment bill calls for significant changes in distribution

Electricity amendment bill calls for significant changes in distribution

In a major development, the Electricity (Am­end­ment) Bill, 2022 was introduced in the Lok Sabha on August 8, 2022. The bill proposes crucial amendments to the Electricity Act, 2003, the principal act governing the Indian power sector. It calls for significant changes in the distribution segment to enable competition in retail power supply th­rough non-discriminatory open access to multiple distribution li­censees in an area. This will give consumers the freedom to ch­oose their electricity supplier rather than depending on the incumbent state-owned distribution utilities, many of which are inefficient and do not provide quality power. Expec­tedly, the bill was met with stiff opposition inside and outside Parliament due to concerns regarding the privatisation of distribution and dilution of the state governments’ control on power, which is a co­ncurrent subject. The bill has now be­en referred to the standing committee for wider discussi­ons with the stakeholders.

A look at the key provisions of the bill and their likely impact…

Key highlights

The bill, as tabled in the Lok Sabha, states that while the Electricity Act, 2003 has facilitated the development of the power sector and bro­u­ght in significant investments, the emerging challenges of sustainability, contract enfor­ce­ment, payment security mechanism, energy tra­nsition and the need to provide choice to con­sumers necessitate amendments to the act. These amendments are also important to promote green energy in the context of global climate change concerns and India’s in­ter­na­tional commitments to increase the share of renewable energy. Further, there is a pressing need to strengthen the regulatory mechanisms in the act and introduce administrative reforms for improved corporate governance practices in distribution.

The bill seeks to amend Sections 14 and 42 of the act in order to facilitate the use of distribution networks by all lic­en­se­es under provisions of non-discriminatory open access (subject to the payment of wheeling charges) to en­ha­n­ce competiti­on, improve the efficiency of distribution licensees for providing better services to consumers, and ensure the sustainability of the power sector. This will allow more li­cen­sees to operate in the area and supply power using the existing distribution network, thereby ending monopoly in distribution.

A new provision has been inserted in Se­ction 60A of the act to facilitate the management of power purchase and cross-subsidy in the case of multiple distribution li­censees in the same area of supply. Fur­ther, if the regulator does not accept or reject an entity’s application for a power distribution licence within the stipulated time frame of 90 days, the licence will be presumed to have been issued. The move is targeted at reducing delays in the licensing process. In addition, in the case of distribution of electricity in the same area of supply by two or more distribution li­censees, the app­ro­priate electricity regulatory commission is requi­red to fix the maximum ceiling tariff and the minimum tariff for retail sale of electricity. The bill also seeks to ensure that the tariff covers all costs incurred by the licensees.

The bill proposes to amend Section 26 of the act in order to strengthen the functioning of the National Load Despatch Centre (NLDC) whi­ch needs to ensure th­at no electricity is sc­heduled or despat­ched unless adequate security of payment has been made, as prescribed by the central government.

Further, the bill specifies penalties for de­fault by the obligated entities in meeting their re­newable purchase obligation (RPO). Such entities will be li­able to pay 25-35 paise per kWh for the shortfall in purchase in the first year and 35-50 paise per kWh for the shortfall in purchase after the first year of default. In addition, an amendment to Section 86 of the act is proposed to ensure that the RPOs specified by the states are not less than the trajectory prescribed by the central government. Other am­endments include measures to strengthen the For­um of Regu­la­tors to prepare model regulatio­ns for the state electricity regulatory co­m­mi­s­si­ons (SERCs); changes in qualifications for the post of chairpersons and me­mbers of the Cen­tral Electricity Re­gu­latory Commi­ssion, and extension of civil court powers to SERCs.

Conclusion

The amendments to the Electricity Act, 2003, especially those aimed at reforming the distribution business, are long pending and have been attempted several ti­mes but are met with stiff resista­n­ce from states. However, given that distribution utilities in many states are highly inefficient and financially imprudent, the introduction of competition through mu­l­tiple licen­se­es is es­sential to bring in fiscal and operational discipline. How­ever, it must be ensured that the new licensees do not indulge in cherry-picking and en­ter only urban areas while the incumbent utilities continue to serve less revenue paying rural areas, which will adversely affect their fin­ances. The other provisions of the bill are also timely and relevant, and are likely to make the sector more investor friendly. Going forward, the industry stakeholders keenly await the passage of the bill, which offers hope for a promising future for the power sector.

Neha Bhatnagar