Electricity Amendment Bill 2021

Context:

The Electricity Amendment bill, 2021 of the centre is facing opposition even before introduction in the parliament

Background

Many state governments, including West Bengal  have asked the centre not to introduce the bill in the parliament.

Electricity Amendment Bill 2021

• The bill will deregulate electricity distribution sector and allow private companies to compete with state-owned distribution companies (DISCOMS).

• This would give options to the consumers to choose the distribution company they want without relying on inefficient state owned ones.

• At present many private distribution companies exist in major cities such as Delhi, Mumbai, and Ahmedabad. But these are exceptions.

Why this bill needed:

• Despite multiple sets of reforms since 2003, the electricity sector is still faces problems of operational inefficiencies and financial solvency causing a negative impact on other sectors and manufacturing competitiveness.
• Issues with discoms: 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.

Problems faced by DISCOMS:

Power sector value chain

The Indian power sector value chain can be broadly segmented into generation, transmission, and distribution sectors.

The distribution sectorconsists of Power Distribution Companies (Discoms) responsible for the supply and distribution of energy to the consumers (industry, commercial, agriculture, domestic etc.).

This sector is the weakest link in terms of financial and operational sustainability.

Distribution Problems faced by DISCOMS

Power distribution companies collect payments from consumers against their energy supplies (purchased from generators) to provide necessary cash flows to the generation and transmission sectors to operate. Due to the perennial cash collection shortfall, often due to payment delays from consumers, Discoms are unable to make timely payments for their energy purchases from the generators.

This gap/shortfall is met by borrowings (debt), government subsidies, and possibly, through reduced expenditure. This increases the Discoms’ cost of borrowing (interest).

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.

Issues with draft electricity (Amendment) bill

• Fixing costs of coal and railway freight: Discoms are unable to recover their costs, out of which nearly 75-80% are power purchase costs. These costs have increased much more than the weighted average increase of wholesale price index and retail price index. No solution (to power distribution and generation companies) has been offered to reduce the fixed cost of unutilised power through the amendment bill.
• Poor state of existing discom network: The newly registered companies are given the facility to use the power allocation as well as the network of existing discom, which may be in a poor condition in many cases due to paucity of funds. With such a network, the quality of supply to the electricity consumers will be seriously affected.
• Mandatory qualifications: 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. . Such background and experience in the field of economics / finance should have been made mandatory for this post to avoid rehabilitation of favourite retired officers.
• Vague clauses are used for the removal of members of CERC / SERC which makes them liable to be misused.
• Electricity is on the concurrent list and the states have played a dominant role in electrification. The government is trying to tilt this delicate balance of authority via the draft Electricity Amendment Bill, 2021.
• Entry of private players: Reducing barriers to entry for private players will lead to suffering for consumers. A study carried out by Prayas (energy) group Pune shows that the results of operationalisation of parallel licensing in Mumbai has been contrary to the expectation, as it has taken place with a series of unnecessary litigations, skyrocketing expenses, steep consumer tariffs, and regulatory failure.

Concerns

• There can be a universal service obligation agreement by private players to supply power to agricultural as well as domestic users to prevent cross subsidy.

• There is a plan to define the minimum area to be covered by private sector competitors to include a universal service obligation and also ceiling subsidy.

Source: Indian Express

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