Date: 25/08/2022

Relevance: GS-2: Government Policies and Interventions for Development in various sectors and Issues arising out of their Design and Implementation.

Key Phrases: Electricity (Amendment) Bill, 2022, Electricity Act, 2003, CERC, SERCs, Monopoly, Discoms, Distribution licensees, Non-discriminatory, Cross-subsidy Balancing Fund, Contract enforcement, Renewable purchase obligations, Power distribution sector.

Why in News?

• The government wants to usher in much-needed reforms in the power distribution sector with the Electricity (Amendment) Bill 2022. But the Bill met with stiff resistance.

Background:

• The Electricity (Amendment) Bill, 2022 to amend Electricity Act, 2003. was introduced in Lok Sabha on August 8, 2022.
• The bill proposed to regulate the electricity sector in India.
• It will set up the Central and State Electricity Regulatory Commissions (CERC and SERCs) to regulate inter-state and intra-state matters, respectively.

Key provisions under the Bill are:

• Ending the monopoly of discoms:
  • The monopoly of discoms over retail supply in their licensed areas will end.
  • It provides for multiple distribution licensees (discoms) to operate in the same area of supply.
  • It adds that a discoms 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.
• CERC gets licensing powers for multi-state retail supply:
  • In a major change, the Central Electricity Regulatory Commission (CERC) will now license applicants for distribution in more than one state.
• 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.
• Payment security:
  • The Bill provides that electricity will not be scheduled or despatched if adequate payment security is not provided by the discoms.
  • 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 the 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.
  • Failure to meet RPO will be punishable with a penalty between 25 paise and 50 paise per kilowatt of the shortfall.

Issues with the Electricity (Amendment) Bill, 2022

• Against federalism:
  • Farmer bodies and the Opposition believe that by allowing multiple private agencies to distribute power in one place, the amendments will weaken the power of states.
  • The amendments will effectively curb the right of state governments to regulate tariffs and distribution and are against India's federal structure.
  • Despite electricity being in the concurrent list, the Centre gave no time to the states to express their views on the proposed amendments and in the process, the basic tenets of federalism were trampled upon. Adopting its provisions blindly would be against the letter and spirit of the Constitution of India.
• Privatisation:
  • These amendments will lead to the indiscriminate privatisation of the power distribution sector.
  • Multiple Distribution Licensees in an area of supply would lead to “cherry picking” because private players would obviously opt for ‘profitable areas’ leaving the ‘loss-making ones’ to the state Discoms
• Electricity unaffordable:
  • One of the main concerns is that the Bill will make electricity unaffordable for both ordinary power consumers and farmers by ending all subsidies.

How will these amendments help?

• SERCs will now determine the minimum and maximum tariffs, giving individual licensees free play in charging tariffs within the range. This will encourage efficient licensees to reduce the tariff to gain market share.
• Unique discoms tariff plans could emerge resembling the telecom model, encouraging customers to choose the plan most appropriate for them.
• It will facilitate non-discriminatory open access to the distribution network of a distribution licensee.

Conclusion:

• The Centre should address the concerns of the states and include them in the debate together with other stakeholders to ensure that the provisions of the bill are implemented effectively because power is a subject of the Concurrent List of the Indian Constitution.
• To address concerns about monopolies, the government should make sure that both government and private discoms operate on an even playing field. Appropriate regulatory procedures should also be in place to ensure that services are being offered equally throughout the nation.

Source: ORF-Online

Mains Question:

Q. Discuss the key provisions of the Electricity (Amendment) Bill 2022. What are the concerns of various stakeholders with regard to this bill? (250 words).