Date: 28/11/2022

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?

• Workers in the power sector have threatened an indefinite strike against the passing of the Electricity (Amendment) Bill, 2022.
• The National Coordination Committee of Electricity Employees and Engineers (NCCOEEE), an umbrella organization of trade unions has held that the Standing Committee has not held any discussions with the workers or the consumers, who are the biggest stakeholders in the sector.

Background:

• The State Electricity Regulatory Commissions (SERCs) constituted under state-level legislation in seven states from 1995 and subsequently under the Electricity Regulatory Commissions Act 1998 (since subsumed into the Electricity Act 2003), have failed to uniformly tackle the twin problems of high operational cost and distorted retail tariff structures that do not reflect the cost of supply.
• As of 19 August 2022, discoms have accumulated overdue, unpaid bills of INR 1.37 trillion.
• In order to bring reforms in the sector, the Electricity (Amendment) Bill, 2022 was introduced in Lok Sabha on August 8, 2022.
• The Bill amends the Electricity Act, 2003 which regulates the electricity sector in India.
• It sets up the Central and State Electricity Regulatory Commissions (CERC and SERCs) to regulate inter-state and intra-state matters.

Key provisions under the Bill:

• Multiple discoms in the same area: The Act requires discoms to distribute electricity through their own network. The Bill removes this requirement. It adds that a discom 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.
• Power procurement and tariff: Upon grant of multiple licenses for the same area, the power and associated costs as per the existing power purchase agreements (PPAs) of the existing discoms will be shared between all discoms. Under the Act, in case of multiple discoms in the same area of supply, the SERC is required to specify the maximum ceiling for a tariff as well as a minimum tariff for such cases.
• 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. Previously, licensing distribution was purely SERCs function.
• 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 subsidizing the consumption of another consumer category. Any surplus with a distribution licensee on account of cross-subsidy will be deposited into the fund.
• Payment security: The Bill provides that electricity will not be scheduled or despatched if adequate payment security is not provided by the discom. 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.
• Renewable purchase obligation: The Act empowers SERCs to specify renewable purchase obligations (RPO) for discoms. The Bill adds that RPO should not be below a minimum percentage prescribed by the central government.
• Selection committee for SERCs: Under the Act, the Chairperson of the Central Electricity Authority or the Chairperson of the CERC is one of the members of the selection committee to recommend appointments to the SERCs. Under the Bill, instead of this person, the central government will nominate a member to the selection committee.

How consumers & suppliers may benefit:

• To be able to choose their own power supplier would be a major empowerment for consumers.
• The stipulated 90-day time to regulators for approval or application means regulators can no longer sit on applications for licences.
• Power regulators will set electricity tariffs every year, which will bring in dynamic prices based on emerging situations. Regulators being able to implement orders as a decree of the civil court will mean better and more timely compliance.
• The provision to remove regulatory body members for wilful violation/negligence will lead to better implementation of rules and processes.

Concerns being raised against the bill:

• Against the federal structure of the Indian Constitution:
  • 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 on 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.
• Huge burden on the State exchequer;
  • The implications of the bill can put a huge burden on the State exchequer as the cross-subsidising consumers shall move towards private companies offering competitive rates and the subsidised ones shall stay with the government companies. The government discoms will by default go into losses and soon become unable to purchase electricity from generators.
• Myth of cheaper electricity for consumers:
  • It is highly unlikely that consumers might be benefitted in case of more than one discom in competition with the other, as around 80 per cent of the costs sustained by the discoms are directed towards the purchasing power from power generating companies. Thus, according to these statistics, the myth of cheaper electricity for consumers seems to be a far-fetched dream.
• Sharing of PPAs:
  • The bill proposes that existing PPAs be shared between the different retailers in an area. According to experts, simple measures in this aspect will lead to suboptimal outcomes, which might raise costs.
• Centralisation of powers:
  • The bill, by seeking to make the SERC chairman a nominee of the Union Government, gives a strong impression that the Union Government is trying to control the SERC’s appointments.
  • Therefore, the vesting of unlimited powers in the Union Government can have a severe impact on the functioning of regulatory commissions, with them becoming subordinate entities rather than autonomous bodies.
• Threat of 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.
• Making electricity unaffordable for consumers:
  • The Bill will make electricity unaffordable for both ordinary power consumers and farmers by ending all subsidies.

Source: The Hindu

Mains Question:

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