Amendments to the Electricity Act should have consent of States

Amending the Central Electricity Act 2003 is an attempt by the government to change the course of policy direction and its implementation in the power sector.

The Act was intended to be amended in 2014 and the draft Amendment Bill saw frequent revisions. The Ministry of Power has finally come up with a fourth draft in April 2020 and called for public comments. Some of the proposals are long overdue and are to be appreciated without reservations.

Focus on direct subsidies to the consumers, revamping of the appellate tribunal, and deemed adoption of tariffs by State Electricity Regulatory Commissions (SERCs) are among the issues that must be welcomed.

However, proposals leading to erosion of powers of the States, obligations towards mandatory purchases of renewable energy, and contemplated structural changes in retail business are debatable.

Despite far-reaching reforms initiated three decades ago, the distribution segment continues to be the weakest both operationally and financially. Successive bailout packages have not improved their finances.

The latest one being the flagship UDAY scheme launched in 2015 to revive the Discoms. Even with this scheme, the aggregate technical and commercial losses have hardly come down, and their outstanding debt levels have reached unsustainable levels (more than Rs 92,000 crore dues as of February 2020 to the generation companies alone).

Besides other reasons, delayed payment of subsidies by the State governments accounts for these huge arrears. Effective political consensus is required to put an end to the revenue leakages and present practice of widespread political patronage for non-metering, non- billing, and open theft of power and open-end giveaways to the electorate.

The draft amendment Bill could have proposed some mandatory provisions to discourage such practices. Instead, the Ministry chose the soft option of privatization, considering it as a panacea for all the problems and challenges in the power sector.

The proposal to amend Sections-2 & 14 on allowing franchisees and sub-licensees in distribution may create more complications as the proposed amendments are not clear in their text and intent. The obligations of either sub-licensees or franchisees are not specified, leading to ambiguity.

There is no need to treat sub-licensees and franchisees separately. Private players, if allowed, must operate with the full knowledge and consent of the regulators with all the obligations.

The proposal to strengthen the Appellate Tribunal for Electricity (APTEL) and increase the membership of APTEL from existing four to seven [including Chairman] must be welcomed. As mere increasing the membership alone will not ensure speedy disposal, the supporting staff with needed skill sets should also be increased along with setting up regional benches.

The APTEL has no explicit mandate to protect consumer interests. Hence, suitable amendments must be made to protect and represent consumer interest before APTEL.

The proposal to constitute a single selection committee for the selection of Chairman and members of the SERCs is unwarranted. Each State has specific requirements concerning sectoral problems and commitments. Members of state ERCs must be familiar with the local language and issues of different sectors.

Hence it looks prudent to leave the subject of appointment of members of state ERCs to the states only without a potential straining of center–state relations.

The proposal for the deemed adoption of tariffs by the SERCs should be welcomed. The time frame for the same may have to be increased from the present 60 days to 180 days. This duration is decent enough to enable proper scrutiny of the power procurement proposals to be in match with load forecast, and fair and equitable competitive bidding by Distribution Companies [Discoms] before assenting final approval.

The recommendations relating to the levy, as well as the collection of cross-subsidy surcharge, would mainly facilitate intrastate and open access transactions.

The State Commissions now have to determine retail tariffs without accounting for any subsidy under section-62 (1d) of the Act. While many ERCs are already practising the same, the ERCs are announcing final retail tariffs after taking into consideration the amount of subsidy provided by the state governments.

Section 65 of the draft amendment stipulates that the state government shall pay the amount of subsidy directly to the consumers in advance, and the consumers will have to pay the cost of service through retail tariffs as fixed by the ERC. This proposal, in principle, is to be welcomed as it helps better targeting of subsidies.

However, there is no clarity whether subsidy will be transferred directly to the bank accounts of the consumers through DBT or indirectly through the Discoms.

Identification of beneficiaries among the two significant groups- farmers, and domestic consumers, is difficult due to the widely prevalent tenancy among these two classes of subsidy recipients. It would be better to implement the DBT scheme first on a pilot basis in a phased manner.

The draft Amendment Bill proposes to make the purchases of renewable energy mandatory for all the states along with a certain proportion of hydropower. Hydropower does not qualify itself to be included under the category of renewable energy given the large-scale displacement the hydro projects caused and other environmental impacts they brought in.

The direct cost of hydropower is prohibitively higher than solar and wind power. When the present trend is to promote renewable energy under competitive bidding, there is no need to insist on the thermal generators to establish renewable plants. Therefore, the provision relating to renewable generation obligation (RGO) by the thermal generator may also be omitted.

The proposal to eliminate cross-subsidies is in the right direction. However, the stipulation that they must be reduced based on the trajectory specified in the yet to be formulated national tariff policy is not in the right spirit.

While the utilities must work towards this end, there are practical difficulties in the way of eliminating them immediately. The conditions differ from state to state, and state-specific realities and requirements will not reflect in the national policy. Given this, it is better to leave the matter to the state-level regulators.

The National Tariff Policy has fixed the cap of cross-subsidy at 20 percent. This may be gradually brought down to 0 percent within a reasonable time frame.

The proposal for cost-reflective tariffs is as old as power sector reforms. It was one of the objectives of the reforms. It is a matter of regret that even now tariffs fixed are not reflecting costs.

Many State governments are apprehensive of the proposed amendments as they take away some of their existing powers and flexibility. The proposal to set up a contract enforcing authority is also being opposed by the states.

They are arguing that there are enough laws on contracts and a separate contract enforcing authority for the electricity sector is not necessary. Similarly, the states are of the opinion that they must retain the freedom to determine their energy mix without attracting penal provisions of a central act.

Each state has a unique capacity and potential for hydro, thermal, solar, and wind energy sources. The need of the hour is to increase regulatory clarity, accountability, and transparency rather than centralisation of decision making in a vital sector like electricity.

Any national policy on electricity should be formulated with the explicit consent of the States and must not be imposed on them.